As pumpkin spice lattes hit the streets, regulators converged on Kansas City to discuss the industry’s wins, market outlook, and the joys and sorrows of insurance regulation at the National Association of Insurance Commissioners’ Insurance Summit, Sept. 11-14, 2023.
The caffeine-fueled days and nights of coastal regulators re-discovering the fun of Kansas City were a relief for those who compose the industry regulator scene – people whose passion for consumer protection and a well-constructed exam handbook make them quite a niche group. It was a conference of nerdy insurance people finding their people, of learning about such subjects as producer exam handbooks until your eyes crossed and you were happy to have an excuse to walk around the massive Loew’s hotel and conference center complex pretending to be lost just to empty your head a bit.
For those of you who were unable to attend or watch online, we’ve rounded up our key takeaways from this year’s NAIC Insurance Summit:
- The insurance industry doesn’t exist in isolation
The event in Kansas City kicked off with “Outlook on the U.S. Economy,” presented by Thomas Hoenig, former President and CEO of the Federal Reserve of KC, who elaborated on macroeconomic factors that are driving the greater economy. His comments focused mostly on whether we might still be facing a recession or other bubble burst.
“If we get a soft landing, it will be because of an absurd amount of government spending,” said Hoenig, cautioning against the long-term consequences of bringing on federal debts that outstrip GDP growth.
The cautionary words set the backdrop for a conference where panels and discussions mirrored topics that grip media headlines across the country. Climate change, catastrophic storms, social justice, political wrestling, cybersecurity, large language models, artificial intelligence, data privacy, and more had their say in presentations and table talks across the insurance regulation conference. The point drove home that insurance regulation doesn’t happen in a vacuum. It’s a reaction to modern problems, industry changes, consumer needs, and political forces.
- Standardization in the industry is still a focus, as always
From adjuster licensing to changing disaster risk models and previews for the upcoming release of an NAIC data privacy model regulation, conference panels were a constant reminder of how far apart states are. Yet, the whole point of the NAIC Insurance Summit is for regulators to come together and discuss how they can move a few inches closer together.
In “Welcome Remarks, State-Based Excellence in Producer Licensing,” Karen Stakem-Hornig, CEO of the National Insurance Producer Registry (NIPR), alluded to the work that remains for states to come together.
As she said, in 1871, the first NAIC meeting minutes note the association’s stated goal as being, “A system of insurance laws which shall be the same in all states, not reciprocal, but identical, not retaliatory, but uniform…”
As we know, insurance is at best a reciprocal industry in these United States. The political realities of regulators who have a preferred way of doing things, and the legislatures that refuse to believe they should agree to terms set by other states, all add up to a confusing landscape of insurance rules.
Yet, Stakem-Hornig also defended the merits of state-based regulation, saying, “Closeness to the consumer is what differentiates state-based regulation. If it was a federally regulated program, reaching the insurance commissioner would be nearly impossible. Right now, as a consumer, it’s fairly accessible to reach the commissioner and state regulators.”
Stakem-Hornig also cheered how much progress has been made over the past few decades, and reminded regulators that the federal government has the option to push the National Association of Registered Agents and Brokers, if necessary, to force standardization and uniformity if states stagnate on their efforts to come together.
- NIPR serves as a vital source of industry knowledge and coordination
NIPR and other NAIC-driven partnerships like the State-Based Systems are critical in making it easier for the industry to connect and understand the myriad laws and regulations of the states. Stakem-Hornig also cautioned that every insurance stakeholder keep in mind that NIPR itself doesn’t make the rules.
“If we made the rules, there would be one way of doing things, but we have to do things the way all the various states require,” said Stakem-Hornig. “We’re like a utility.”
Yet, despite its lack of regulatory power, NIPR undoubtedly helps bring states closer together on some procedural minutiae. One presentation outlined areas of focus for technical best practices, such as moving license renewals to a birth month for uniformity across producer laws.
“Some of it is simply asking states, ‘is there a consumer benefit to having renewal on a birth day versus a birth month?’,” said Stakem-Hornig.
Statistics about NIPR’s vast impact on producer licensing and their help in navigating state rules as a whole are incaculably valuable to those working in insurance:
- NIPR manages 2.7 million active individual producers
- NIPR manages more than 229,000 active business entities (aka insurance agencies)
- 904,000 producers are multi-state license holders
- The average multi-state licensee has 9 or more nonresident licenses
- NIPR took more than 275,000 producer calls, chats, and emails in 2022
Truly, the folks at NIPR deserve a standing ovation for bringing what ease of work exists to the industry. In multiple presentations, from how to standardize the approach to 1033s to minding adjuster licensing, the solution often starts with NIPR.
- Catastrophic losses are on everyone’s mind
The following events discussed catastrophic weather events, sometimes through the lens of climate change, sometimes through the lens of actuarial models:
- Current Adjuster Licensing Topics
- The Broad Impact of Natural Catastrophy
- Overview of Exam and Analysis Handbook Changes Related to Natural Catastrophe and Climate-Related Risk
- Climate-U.S. Insurer Transition Risk 3.0
- Common Deficiencies in Rate Models and How to Address Them
- Use of Reinsurance to Manage Catastrophic Risk Exposure
- Research Insights on Roof Age and Wind Performance of Asphalt Shingles
- How Infrastructure and Private Equity Investments Affect the Underwriting Portfolio
- Deconstructing Advanced Models
- Wildfire Panel–How Catastrophic Loss Activity Affects Property Insurance Markets
Proportionally, weather and natural disaster discussions accounted for about 15 percent of the discussions at the conference.
A sample of the hot takes on wildfires (pun horribly intended) and other catastrophic loss risks included some very convincing charts intended to convey that hurricanes, wildfires, and other eye-popping loss events still don’t compare to the surge in damage caused by severe storms in the past decade.
“Hurricanes and earthquakes get a lot of headlines, but what drives the most cat losses are severe storms. It’s growing much more than the other perils that get a lot of headlines,” Randy Fuller of Guy Carpenter Reinsurance said in “The Broad Impact of Natural Catastrophy.”
Yet, panelists also agreed that the hard P&C market may stabilize if insurers can counterweight historical data with the data of the last five years in their pricing models. Although it would likely jack premiums, models would then reflect a more likely reality (as well as ensuring solvency) for P&C insurers and reinsurers.
Regulators and industry execs also warned not to myopically focus on climate change, citing social inflation and the reality that more people have built in areas that went unpopulated in past centuries as additional factors affecting the industry. Based on this view, too many people have moved to areas that lack historical data for underwriting, or where state governments and insurers should actively discourage construction, panelists argued. Yet, California and Florida don’t seem to be pulling beachfront permits anytime soon.
Regulators and industry wonks in the “Wildfire Panel—How Catastrophic Loss Activity Affects Property Insurance Markets” posed that insurers may be able to sustain more affordability if they insure based on individual property risks. Currently, most homeowner wildfire risks are underwritten based on ZIP code or county factors.
“If the homeowner knows their real risk of wildfire, they’re more likely to see ‘here’s what I can do to mitigate my risk,’” said Vincent Plymell of the Colorado Division of Insurance. “It’s about getting to the house level and letting the homeowner own that risk.”
On the same wildfire panel, Anne Cope, Chief Engineer of the Insurance Institute for Business & Home Safety (IBHS), noted that her company’s models estimate homeowners who take basic fire prevention measures around the outside of their homes can reduce the risk of property loss by 50 percent, even in the case of a community fire.
A 50 percent cut to the risk of being consumed in flame should send more than a few people to search “IBHS wildfire prepared home guide” on their search engine of choice.
- Insurance technology – both its use and regulation – has a long way to go
From AI to consumer data protection to antifraud detection, insurtech is just getting started, and regulation isn’t ready.
AI tools such as large language models are rapidly evolving, changing at the speed of text, and giving regulators and industry execs little time to catch their breath and decide how best to use or limit these tools.
Currently, the NAIC is working through a data privacy model that is actually formed of four existing models that have been amended and compiled into one. While NAIC members lauded how close they are to being finished with the process, they also lamented that the overlap of data privacy with actuarial modeling and underwriting means there’s no perfect consumer solution they can apply to insurance businesses.
Federal fraud prevention experts talked about the potential for more coordinated, less siloed tools to stop fraud. Alan Haskins, Head of North America Insurance Strategy and Innovation of Quantexa, lamented how many insurance businesses are unable to stop fraud because their systems involve unstructured data, or because tech silos prevent them from running address verification on consumer claims or license and appointment checks on producers.
This isn’t a subtle transition, but, someone at the conference said validating producer data at the point of business submission, point of commission, or point of claims was a great way to prevent fraud. So we’ll remind you that AgentSync has multiple solutions that can provide you that sort of timely, automatic data verification so you can stop fraud and noncompliant sales before they happen. To learn more, schedule a demo. And for all the NAIC attendees, see you next year.