Compliance

With technology playing an increasingly important role in the modernization and standardization of the 50-state system of insurance regulation, officials from the National Association of Insurance Commissioners have decided the time is ripe for development of standards that can make the process more seamless.The National Technical Architecture working group started work early this year on standards that will be mandatory for information projects developed directly for the Kansas City, Mo.-based NAIC, and serve as a guide for state and industry efforts that target national regulatory interoperability.

A year ago, health insurers, health plans, providers, hospitals and clearinghouses collectively were heaving a sigh of relief.That's because they were granted the option of applying for a one-year extension to comply with the standardized transactions and code set rules of the Health Insurance Portability and Accountability Act (HIPAA).

Allstate Insurance Co. is in the process of negotiating a settlement with the California Department of Motor Vehicles to restore the carrier's access to electronic driving records in the state.In January, California DMV officials indefinitely suspended the Northbrook, Ill.-based carrier's access to electronic driving records.

As if a ghost from the past has reawakened, property/casualty insurers are again confronting a huge potential wave of asbestos claims.Indeed, the recent moves by Ace Ltd. to boost its asbestos reserves by $1.9 billion, following Travelers Property Casualty Corp.'s decision to add almost $2.5 billion to its asbestos reserves, has caught both credit agencies and financial analysts off guard.

The insurance industry is taking aim at a survey sponsored by the Washington Office of the Insurance Commissioner which raises the issue of whether credit scoring can adversely impact the ability of low-income and minority consumers to obtain affordable insurance.The latest controversy over the use of credit scoring comes as the industry braces for another round of legislative efforts to either curb the practice or ban it altogether. As many as 40 states are expected to tackle the issue this year, industry groups say.

What do you do when you are bound by law to educate thousands of employees in less than a year on privacy standards contained in a 350-page, fine-print document?If you're like most health insurers, you spend a lot of time interpreting the privacy rules of the Health Insurance and Portability and Accountability Act (HIPAA), you boil them down to simplified policies and guidelines, you determine what employees need to know to perform specific jobs, you develop a training program, and you begin instruction.

"No more easy money for criminals, just hard time." With those words, President George Bush signed into law the most sweeping corporate reform legislation since the New Deal of the 1930s.Under the new law, the stakes for white-collar crime have increased dramatically, with the CEOs and CFOs of America's corporations now required to attest under oath to the accuracy of their financial statements under the threat of million-dollar fines and prison sentences.

To most insurance companies, knowing the identities of their customers has always been motivated by commission-that is, the more insurers know about them increases the rate at which they can market additional services.Following the passage of the USA PATRIOT Act in late 2001, carriers are gleaning details about their customer base motivated by omission-that is, how to eliminate unsavory customers whose sole objective is setting up insurance accounts to break the law.

While the plenary body of the National Association of Insurance Commissioners (NAIC) gave its final approval to the proposed interstate compact at its Winter meeting in San Diego, opposition and questions raised in the debate bode for the process taking years rather than months.The proposal now goes before numerous organizations representing state lawmakers and policymakers before a final package to create a single national filing system for life products will be presented to state legislatures.

Faced with a whole new ball game of unprecedented federal backup for catastrophic losses caused by a terrorist attack, the U.S. insurance industry, including underwriters, reinsurers and brokers, are scrambling to interpret the new legislation and revise their underwriting programs to deal with the issues presented by the new law.The Terrorism Risk Insurance Act of 2002 will take effect upon date of enactment and provides for a sliding scale of government backup over its three-year life. While there seems little disagreement that the backstop will increase availability of terror risk coverage, its effect on pricing remains to be seen.

Although the use of credit scores as an underwriting tool for auto and homeowners insurance is now an established practice, consumer groups, legislators and regulators still have not had their final say on the matter.Indeed, state lawmakers across the nation can look forward in 2003 to consideration of numerous measures to curb the practice-and in some cases outright ban it.

Insurance industry lobbyists acknowledge that the financial services industry could come under some expensive and restrictive privacy compliance rules next year if Congress follows through on plans to hold extensive hearings on the issue.Indeed, Congress could decide to write new laws mandating that consumers be allowed to "opt-in" to sharing of financial data given to one unit of a financial services company with another unit. Currently, the policy at both the state and federal level is that consumers have the right to "opt-out" of companies' cross-marketing programs.

While in flight to Boston on the morning of Sept. 11, 2001 and hearing news of the horrific attacks in progress, Hemant Shah's first concern was the fate of the business associates he met with the previous day at the World Trade Center.But as the founder of Newark, Calif.-based Risk Management Solutions (RMS), he must have realized the seismic change the field he helped pioneer-catastrophe modeling-would soon experience.

As the needs and demands of e-business evolve, companies are faced with an emerging security threat. And it's not a new hacking technique or vulnerability in a particular technology.It's complexity-the complexity of technologies, the complexity of balancing business and security demands, and the complexity of relationships among user communities.

Until last month, the strongest positions regarding modernization of insurance regulation have been proposals for an optional federal charter for insurance companies. But another compelling-and opposing-perspective entered the debate in August, when the Alliance of American Insurers published a report that firmly argues against federal regulation for property/casualty insurance."Optional federal chartering entails a significant risk of adverse and unexpected consequences, no matter how carefully and narrowly initial legislation is crafted," the report concludes. "The better and more prudent policy is to reject federal chartering and encourage and support further modernization of state regulation."

A major step in streamlining agent licensing across the states was taken in August when the National Association of Insurance Commissioners (NAIC) made the preliminary determination that at least 35 states had met the reciprocity requirements for nonresident producer licensing under the Gramm-Leach-Bliley Act (GLBA).At press time, the Kansas City, Mo.-based NAIC was expected to officially certify those states at its meeting in September in New Orleans.

Ever since Gramm-Leach-Bliley passed in November 1999, momentum has been building to reform the state-based insurance regulatory system. The landmark legislation, which allows banks, insurers and brokerages to merge and compete with one another, also ordered the states to enact uniform producer licensing laws by November 2002 (see "Here Come The Feds, May 2001).Yet, although the law mandates uniform producer licensing, it essentially left the rest of insurance regulation to the states. And, according to many in the industry, the state-based system puts insurers at a disadvantage-especially when they're trying to compete nationally with banks and brokerages.

For years, paper-based processing for a commercial insurance policy has made it exceedingly difficult to assess risk and issue accurately priced coverage. Moreover, many insurers and reinsurers have had a hard time fully analyzing client data due to the lack of disclosure by the client.But Schaumburg, Ill.-based Zurich North America launched in February a Web-based solution-called the Business Interruption Coverage calculator-which will be an integral part of its underwriting procedure for business interruption coverage.

As two bastions of tradition, neither the legal profession nor insurance carriers eagerly jumped onto the Internet bandwagon in the late 1990s.But now, the dust of the dot-com wreck is settling, and carriers and their counsel are beginning to see where it makes sense for them to use online technology to manage legal costs and improve collaboration.

Realizing that generating new insurance volume doesn't necessarily ensure profitability-and may even suppress it-State Farm Mutual Automobile Insurance Co. began implementing a strategy to suspend writing new homeowners policies in 17 states.The Bloomington, Ill.-based insurer is also setting the wheels in motion to fully exit the New Jersey auto insurance market over the next five years. State Farm's geographic retrenchment comes on the heels of a reported $5 billion net loss incurred since 2001. The losses were marked by rapidly increasing claims costs due to an inordinately high series of natural disasters-from hailstorms to flooding.