Louisiana Now Twelfth State to Amend Large Deductible Liquidation Act

On June 4 Louisiana adopted legislation to define how large deductible policies are handled in an insurance liquidation. The new law tracks closely to model language adopted by NCIGF and reflects the NCIGF position that deductible collections and other recoveries are to be remitted at 100% to the guaranty funds to the extent of their claim payments.

In the context of this legislation “large deductible” policies are:

  • Workers compensation policies in which the insurer agrees to pay the claims from dollar one.
  • However, through policy endorsement, the policyholder is obligated to reimburse the insurance company up to a certain specified amount – usually upwards of $100,000. (Sometimes through special arrangement with the insurance company the policyholder pays the deductible amount in the first instance – however the insurance company always has the ultimate responsibility to pay the claim.)
  • These mechanisms allow the policyholder to save on premium and at the same time protect the injured worker.
  • Any collection issues are addressed between the policyholder and the insurance company, but the worker gets needed benefits on a timely basis. Typically, the policyholder obligation to repay is secured by collateral furnished by that policyholder.

Confusion often ensues if the insurance company goes into liquidation and an insurance guaranty fund assumes the obligations of the insolvent insurer for workers compensation cases. Statutes such as the new Louisiana law settle various issues such as 1) who is responsible for collection of the large deductible recoveries, 2) how collateral put in place to secure these obligations should be administered post-liquidation, and 3) does the recovery become a general asset of the now insolvent estate or is it remitted to the guaranty fund paying the claim to the extent of that claim payment?

According to Roger Schmelzer, NCIGF President and CEO, “these issues are important to the guaranty funds for several reasons:  1)  Any confusion about the status of the various parties, such as the policyholder, the claimant, the receiver and the guaranty fund, can result in collection delays and litigation – both of which diminish available funds to reimburse the deductibles; 2) guaranty funds are a limited safety net – ultimately the cost of the guaranty fund payments is passed on to the public by various recoupment methods – having the structure in place to reimburse guaranty funds quickly on deductible payments reduces the cost to the public, and, importantly, bolsters the ability of the guaranty funds to provide seamless protection to injured workers.”

The new Louisiana law addresses all these issues and will do much to eliminate confusion and delay in future Louisiana insurance insolvencies. It’s essential elements are:

  • It calls for the receiver to assume collection efforts.
  • The receiver administers the collateral, draws down on the collateral should the policyholder fail to pay within a certain time frame, and eventually returns any excess collateral to the policyholder.
  • Guaranty funds receive reimbursement in full for their claim payments out of the deductible collections or collateral draw downs. (More information on this rather complex statutory scheme, and other similar laws, can be obtained by review of the new law available https://www.ncigf.org/industry/public-policy-and-legislation/.)

The other states that have adopted similar statutory changes are California, Pennsylvania, Illinois, Indiana, Michigan, Texas, New Jersey, Utah, Florida, Missouri, and West Virginia. Most follow some version of the template of the NCIGF model which has been revised over the years to reflect experience in dealing with these products in an insolvency context. The first state to enact the bill was Pennsylvania during the aftermath of the Reliance insolvency. Reliance was liquidated in 2001 and the legislation was added in 2004.

NCIGF Leaders Address Global Resolution Experts in Taiwan

NCIGF Vice Chair Chad Anderson (WGFS) and NCIGF CEO Roger Schmelzer recently returned from the Asian International Forum of Insurance Guarantee Schemes (IFIGS) meeting held in Taipei, Taiwan. Both spoke to a roomful of 150 Public officials and academics from throughout Asia about the value of insurance guaranty funds.

Chad Anderson presents to the group.

Anderson delivered a robust briefing on how the U.S. property and casualty safety net works and the system’s place in state-based insurance regulation. It was an important presentation because most of the audience was not familiar with consumer protection for casualty products. Nearly all the topics addressed in the two-day meeting involved life mechanisms with an emphasis on avoiding failure altogether and efforts to assist regulators in achieving that end.

Delivering the keynote speech as chairman of IFIGS, Schmelzer outlined common objectives for all nations with policyholder protection laws; early involvement, prioritizing insurance customers and making sure regulators had a full and accurate understanding of how guaranty programs work, concluding by saying that meeting these elements will help to stabilize economies around the world.

Schmelzer pointed to deliberations anticipated later this year by international regulators (including representatives from the United States) on the ideal future state of guaranty systems worldwide. He cited these talks as a critical opportunity to help regulators generate a comprehensive body of knowledge and realistic expectations of insurance safety nets and their missions. Schmelzer also asserted that it was equally important to create an understanding that there is no single best way to protect consumers.

Roger Schmelzer gives his keynote address.

Kopp Named New Executive Director of Missouri Insurance Guaranty Associations

Update provided by the Missouri Insurance Guaranty Associations

Jefferson City, MO: Tamara W. Kopp has been named the new Executive Director of the Missouri Insurance Guaranty Associations by the Associations’ Executive Committee. Kopp takes the helm on October 1, 2019, when Chuck Renn retires after managing the Associations since 1992.

Kopp has spent her legal career with the Missouri Department of Insurance, most recently as receivership counsel representing the receiver for failed insurance companies. Kopp brings an understanding of government, insurance regulation, and company resolutions. She has served on the boards of directors for the International Association of Insurance Receivers (IAIR) and the Women Lawyers’ Association of Mid-Missouri (WLAMM). Kopp also represented the Missouri Department of Insurance on various National Association of Insurance Commissioners (NAIC) Committees, Task Forces, and Working Groups. As Executive Director, Kopp will continue her involvement with NAIC and IAIR while adding the National Conference of Insurance Guaranty Funds (NCIGF) and the National Organization of Life and Health Guaranty Associations (NOLHGA) to her schedule.

“On behalf of the Missouri Insurance Guaranty Associations, we want to thank Chuck for his 27 years of outstanding service to the guaranty associations and to Missouri consumers,” said Mike Voiles, Missouri Farm Bureau and Chair of the property and casualty guaranty association.

Tamara Kopp said, “Chuck has built a solid organization. I’m looking forward to continuing his level of excellent service for Missouri insureds to keep promises made.”

Kopp earned her law degree from the University of Missouri – Columbia and her bachelor’s degree from Northwest Missouri State University.

The Missouri Insurance Guaranty Associations provide protection within limits to insureds, beneficiaries, and claimants who are disadvantaged due to the insolvency of a member insurance company. Not all companies are member companies and not all types of insurance policies and coverage are subject to the protection provided by the Missouri Insurance Guaranty Associations. There are two insurance guaranty associations in Missouri that are jointly administered from one office. However, they have distinct responsibilities under their respective statutes. One association is responsible for insurance company insolvencies among the member life and health insurance companies, and the other association is responsible for insolvencies occurring among the member property and casualty insurance companies.

For more information, visit mo-iga.org

 

D. Keith Bell Tapped as NCIGF Board Chairman

The Board of Directors of the National Conference of Guaranty Funds (NCIGF) has elected D. Keith Bell of The Travelers Companies, Inc., as the NCIGF’s new board chairman.

Bell assumed the two-year board chairmanship at the NCIGF’s 2019 Annual Meeting in Chicago on May 1. He has served on the NCIGF board since 2003. He was the NCIGF board’s vice chair from 2016 to 2018. Keith Bell is Senior Vice President, Accounting Policy, Corporate Finance at The Travelers Companies, Inc. He is responsible for setting accounting policy, monitoring the development of accounting standards, and interacting with insurance accounting standard setters. Prior to joining Travelers, he held similar responsibilities for Aetna, Inc. (formerly Aetna Life & Casualty). Bell has worked in the insurance and financial services industry for over twenty-five years. He has a B.S. degree in accounting from Illinois State University and is a certified public accountant. He is a member of the American Institute of Certified Public Accountants and the Rhode Island Society of CPAs. He has co-chaired the insurance industry committee on statutory accounting for the last ten years. Bell is a contributing author to the IASA Property-Casualty Insurance Accounting textbook and has authored several articles in insurance trade publications. Additionally, he has been active on several NAIC advisory committees, the American Council of Life Insurance’s Accounting Committees, and is currently chairman of the American Insurance Association Committee on Financial Management Issues.

D. Keith Bell (Travelers) and Chad Anderson (WGFS) – incoming chair and vice chair of the NCIGF board of directors

Keith Bell has served with NCIGF for many years and, along with his role on the NCIGF board, he is currently an active member of the Accounting, Finance, and Public Policy Committees and Vice Chair of the Executive Committee. During his presentation at the 2019 Annual Conference where he was voted in as the new chairman, Bell highlighted the history of the guaranty fund system as well as where he believes the system is headed in the future and how the community will continue to achieve its top priority of keeping the insurance promise.

NCIGF Hosts 2019 Annual Conference in Chicago, IL

The 2019 NCIGF Annual Conference was held in May at the historical and centrally located Intercontinental Chicago. The hotel, situated along the famous Magnificent Mile, was a great spot for NCIGF’s 90+ attendees, special speakers and exhibitors.

The conference opened with a welcome from the Director of the Illinois Department of Insurance, Robert Muriel, and the first day saw presentations representing the passing of the torch from the outgoing board chairman, Chuck Renn, Executive Director of the Missouri P&C Insurance Guaranty Association, to his successor, D. Keith Bell, from The Travelers Company, Inc. Both men made comments regarding the ever-important issues that the guaranty fund community continues to face, noting specifically the importance of the continued funding of the system, cyber security and relationships with receivers. The first day of the conference also included panels on important topics such as operational readiness, international issues and IT security.

Panels and presentations on staffing, media relations and the challenges and discoveries of being a newer fund manager rounded out the second day of the conference.

Survey satisfaction ratings of both Chicago and The Intercontinental were high and several

May 1, 2019 – NCIGF Annual Conference

comments were made about taking the information from the educational program back to offices and teams for review. When asked, ‘What ideas did you hear from the presentations that you are most excited to take back to the office?’, the responses were a great testimony that the educational event gets the wheels turning on important issues:

“Several great ideas on cyber security.”

“Claims training to be prepared for the future, and how claims are the most integral part of operations for all guaranty fund offices.”

“Different ways funds hire and train employees and use outside temps or vendors.”

 “Communication best practices for media relations.”

 “Great takeaways for staffing issues and solutions.”

 

Registration for the next NCIGF educational event, the 2019 Fall Workshop, will open in a few months. This conference historically focuses on the issues specific to IT, Accounting and HR. For more information on NCIGF events, click here.

U.S. Leads Insurance Policyholder Protection Around the World

(Originally published in the Spring 2019 issue of The Insurance Receiver and is reprinted with the permission of IAIR)

On January 1, I began a one-year term as Chairman of the International Forum of Insurance Guarantee Schemes (IFIGS). My colleague at NOLHGA, Peter Gallanis has been involved since the earliest days of IFIGS and I joined him a few years ago.

The objectives of the Forum are to facilitate and to promote international cooperation between Insurance Guarantee Schemes and other stakeholders in the development of policyholders’ protection. From time to time it may communicate views, ideas and experiences to interested parties. IFIGS is a voluntary not for profit membership network. It is independent of any government authority.  Currently there are twenty-five members and the membership is growing.

I took on this responsibility because of my very strong sentiment that the insurance industry is absolutely essential to the world economy.  The insurance promise makes opportunity a possibility. Our support of it keeps the industry strong and gives comfort and peace of mind to policyholders. Guaranty mechanisms ready to protect insurance consumers undergird the sanctity of the insurance promise by assuring the viability, commitment and reputation of the insurance industry.

IFIGS is well-positioned to be the global definitive expert on supporting the insurance promise. All protections do not have to be structured the same way, but the important role of policyholder protection mechanisms must be articulated clearly and effectively to regulators as they work as overseers of the global insurance industry.

To build the value of the organization, IFIGS members have set three long-term strategic objectives:

  • Information Sharing. IFIGS will collect information and be the global expert regarding insurance guarantee schemes and will be an active resource for IFIGS members, supervisors and standard-setters.
  • Member Outreach. IFIGS will develop a plan for actively recruiting new members and encouraging more active participation and leadership by existing members.
  • Reputation Enhancement. IFIGS will work to heighten its profile with supervisors and standard setters, including those that may be involved in developing new insurance guarantee schemes.

Examples of IFIGS effectiveness are not hard to find:

1. The consultation paper published by the IAIS in mid-November, 2018 concerned a proposed holistic framework for the assessment and mitigation of systemic risk in the insurance sector. The initial IAIS consultation included the following statement:

“In addition to the direct economic effects of an insurer’s failure to pay claims on consumption, by a reduction of policyholders’ wealth, a number of correlated failures could have additional knock-on effects, such as through some insurance guarantee schemes.”

IFIGS, in partnership with NOLHGA and NCIGF, commented on the consultation paper and strongly objected to that statement. The offending comment was removed from the revised paper.

It would have been nothing short of a disaster for global regulators to continue their consideration of approaches to insurer oversight if they believed that policyholder protection schemes could spread contagion! It could take decades to change that thinking and no one country could do that alone. But by working together, IFIGS and its members played a strong advisory role that regulators took seriously. That is the value of being collaborative and building on that strategy.

2. A July 2017 paper published by EIOPA (European Insurance and Occupational Pensions Authority) stated that a minimum degree of harmonization of policyholder protection schemes in the European Union would benefit policyholders, the insurance market and the financial stability of the EU. IFIGS was invited to present on the role that insurance guarantee schemes can play in resolution during an EIOPA recovery and resolution seminar.

Thanks to our active participation in IFIGS, the U.S. made a joint presentation (with Greece) to an audience of European regulators and companies, and our presentation drew more interest from the audience than any other presentation over the day and half seminar. From this experience it was confirmed what we had already learned; that European regulators are very curious about our state-based system of policyholder protection. As EIOPA continues to deliberate on harmonization, the background we provided should prove useful.

3. Finally, on another occasion, Peter Gallanis and I, joined by a colleague from Canada, were asked to represent IFIGS before a working group of international regulators (including James Kennedy from the Texas DOI and Alex Hart from the Federal Insurance Office) who were drilling down on the relationship between regulators and policyholder protection mechanisms. My understanding is that we were helpful in providing background on ways to collaborate to provide a more effective safety net to consumers.

 

A primary goal is to spread the value of our engagement with IFIGS to IAIR and the NAIC. And to take that back to the IFIGS membership and international regulators. Our resolution mechanism—composed of receivers and guaranty funds– is by far the most experienced and effective system in the world. The broader the expertise we can bring to the table, the more impactful we can be on behalf of the individual policyholders and claimants we serve.

For more on particulars of other mechanisms around the world, a good, but not definitive, resource is a discussion paper published by EIOPA. https://eiopa.europa.eu/Publications/Consultations/EIOPA-CP-18-003_Discussion_paper_on_resolution_funding%20and.pdf)

I am happy to discuss this organization and the value of the United States’ participation.  Please feel free to contact me.

Further information may also be obtained from the IFIGS website at www.ifigs.org.

Insurance Business Transfer Model Bill Takes Center Stage at NCOIL

The National Conference of Insurance Legislators (NCOIL) met in Nashville and spent a good bit of time talking about the very hot topic Insurance Business Transfers (IBT). For many, this was the main event from the meeting. NCOIL is considering a Model IBT Law based on the Oklahoma IBT statute passed in 2018.  Here are highlights from the NCOIL discussion:

  • Beth Dwyer (RI) provided background on corporate division and IBT statutes passed to date and an overview of the NAIC Restructuring Mechanisms Working Group’s charges. She explained that working group will develop a white paper that will provide an overview of IBT/corporate division statutes and an explanation of the perceived need for these statutes. She noted that the working group is looking at consumer protections and that a subgroup has been developed to look at the financial standards used in reviewing these transactions. She explained that guaranty fund/association issues are relevant where the statute involves personal lines.
  • Buddy Combs (OK), who was instrumental in passing the Oklahoma IBT statute, provided an update on a current bill designed to help implement the IBT statute. Among other things, the bill (SB 885) tries to address two issues that have come up as Oklahoma thinks about implementing its statute – confidentiality and guaranty fund application. Combs noted that Oklahoma is not rushing to pass this bill and wants to make sure they get it right.
  • Robert Redpath (Enstar) gave a presentation on the benefits of IBT statutes – using UK Part VII transfers as an example of a transfer framework with effective process and established history of success. He noted that this allows companies to efficiently use capital and divest non-core business and redeploy capital.  He advocated for a model to ensure consistency between states and avoid potential disputes over conflict with other state’s laws.
  • Doug Wheeler (NY Life) argued that several companies are concerned about these laws because many lack necessary regulatory controls. He explained that this is an extraordinary process and suggested that the framework fundamentally changes the insurance promise without policyholder consent. He argued that division statutes have the potential to create a good company/bad company situation, which may increase the likelihood of insolvencies. He also noted that mono-line companies with long-tail business can create insolvency risks. He urged careful consideration of the proposed models, noting that additional insolvencies could erode trust in the state system. Finally, he encouraged NCOIL to reach out to Peter Gallanis from NOLHGA to get the benefit of his expertise in this area.  Here is the link to his presentation.
  • Karen Melchert (ACLI) noted that the ACLI is still developing its guidelines on these issues, and the core of the conversations to date center on policyholder protections, including the need for proper notice and process and ensuring appropriate guaranty association/fund coverage.
  • During the Q&A portion of the panel, NCOIL members had questions about how the independence of the independent experts is determined. The legislators and panelists agreed that any division or IBT involving long-term care (LTC) business should be carefully considered. Combs agreed and noted that not all lines of business will be treated the same under the Oklahoma; he explained that Oklahoma regulators are concerned about LTC failures and implied that any IBT transfer involving LTC business would be given heightened scrutiny.
  • Finally, a representative from the Reinsurance Association of America explained that the lack of policyholder consent in these laws may result in conflict with laws in other states that require policyholder consent when a policy is novated.
  • The Committee plans to continue discussion on this model at the Summer National Meeting in July.

NCIGF is paying close attention to all activity related to the IBT debate. I will be giving a brief presentation at the upcoming NCOIL meeting on the potential impact of IBT on policyholder protection. We will update you on that in due course.

NCIGF Reps Meet with Members of Congress

Recently, a number of NCIGF members, board members and staff took Capitol Hill by storm to do some updating on the state guaranty fund system. Meetings like these are critical, especially after an election year that saw a shift in power in the House of Representatives and the election of 100 new members of Congress, many of whom are without a background in financial services. Here are a few quick takes from the day:

  • 16 total meetings; 15 of which were with members of the Senate Banking and House Financial Services Committees.
  • Cross-section of senior members and freshman members, including:
    • Senate Banking Committee Chairman, Mike Crapo
    • Housing, Community Development, and Insurance Subcommittee Chairman, Lacy Clay
    • Housing, Community Development, and Insurance Ranking Member, Sean Duffy
    • 4 House Financial Services Committee freshmen
  • Overarching theme in the meetings was support for the state system.
  • Members and staff expressed appreciation for NCIGF’s engagement.

Many thanks to those who participated, along with John Blatt, Amy Clark and me (from NCIGF staff): Chad Anderson (WGFS), Charlie Breitstadt (Nationwide), Allan Patek (WI), Barbara Law (GFMS), Barry Miller (DE), Brad Roeber (CA) and Frank Knighton (GA). I feel confident we are off to a good start with this Congress. We’ve invested large amounts of resources, especially since the financial crisis, to assure federal lawmakers that the state-based safety net is prepared to protect consumers. Now is not the time to let up.

Encrypted Phishing Email

We received an interesting phishing email attack this weekend – something I had never seen before.  One of the property managers at our building sent a number of us at NCIGF an encrypted email with the subject line: “New Message from your email contact  9801210”.  The body of the email contained an encrypted email message with a link to click to get the message – very standard stuff.  Looking at the link, it went to a microsoft.com domain that prompted you to enter your credentials.  The good news is that no one here did that, primarily thanks to the quarterly cyber training and monthly phishing tests.  Presumably, the phishing attack was either an attempt to harvest credentials (username and password) or – and this is the theory I find more plausible – the encrypted email, once decrypted, contained some kind of malware/virus payload.  We don’t know for sure because by the time we started doing analysis, the initial “open message” link redirected to “page not found”.

We reached out to the sender this morning and they confirmed their email had been compromised over the weekend.

I’ve never seen a legitimately encrypted email be used as a vector for phishing.  While we do communicate to the building manager via email from time to time, we’ve never had cause to send PII.  No one in the office was expecting documents or messages from the building that would necessitate encryption.  This is a clever attack because it hijacks the notion that encryption=safe.  That said, if you receive an encrypted email from someone out of the blue, it’s always a good policy to be skeptical.  Reach out to the sender by phone (not email!) and verify that they sent it.

I’ve included a screenshot of the email in question with names redacted to protect the guilty.