Author Archives: Nathan Bacchus

About Nathan Bacchus

Nathan Bacchus is senior government affairs manager at theRisk and Insurance Management Society (RIMS).
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Reactions Mixed to FIO Modernization Report

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On December 12, 2013, the Federal Insurance Office released its report on how to modernize the United States insurance regulatory system. The report had been long awaited by the insurance industry, so it comes as no surprise that many in the industry have responded to the report’s findings. So far, reviews are mixed.

National Association of Insurance Commissioners:

“The Dodd-Frank Act established the Federal Insurance Office (FIO) within the Treasury Department and makes clear that FIO is not a regulatory agency and its authorities do not displace state insurance regulation.  While we appreciate FIO’s suggestions for improvement, the states have the ultimate responsibility for implementing regulatory changes.”

Independent Insurance Agents & Brokers of America, Inc.:

“While we agree with the report’s conclusion that insurance regulation could be improved and modernized in certain areas, we strongly believe that any federal action should be targeted and limited with day-to-day regulation left in the in the hands of state officials. The state-based system of insurance regulation has served consumers and our economy well for decades. The Big ‘I’ strongly supports the continued preservation of this system and is ardently opposed to any direct infringement by the federal government.”

National Association of Professional Insurance Agents:

“As a strong supporter of our successful state-based system of insurance regulation, we are concerned that the FIO report may be driven by assumptions and assertions that do not hold up to scrutiny. Many of FIO’s assumptions appear to have been contradicted by a Government Accountability Office (GAO) report that concluded that the state insurance regulatory system worked well to help mitigate the negative effects of the 2007-2009 financial crisis on the insurance industry.”

American Insurance Association:

“The Report provides a valuable guidepost for collectively working toward improvements that lead to greater regulatory effectiveness, efficiency, and marketplace competition.  The overall objective of modernizing and improving U.S. insurance regulation should be to promote the growth of healthy, competitive private insurance markets at home and abroad that will ultimately benefit and protect insurance consumers while emphasizing safety and soundness.  The FIO Report affirms these essential goals.”

RIMS:

“RIMS strongly supported the creation of the Federal Insurance Office as a first step toward needed federal regulation of the insurance market. There is no question that commercial insurers, producers and policyholders would benefit from more consistency and uniformity in terms and conditions when insurance is purchased from a single insurer.  Opportunities to streamline the insurance purchasing process are a priority for this Society and we’re happy to see the FIO make progress to enhance regulations.”

There is obvious tension between the FIO and many in the industry over what exactly the FIO’s role is and should be going forward. Now that the report has been released, it will be interesting to see what the FIO’s next steps are. Many government issued reports are released and never heard from again. It remains to be seen if the FIO’s report meets that same fate.

FIO Releases Insurance Modernization Report

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The Federal Insurance Office has released its long awaited report on ways to modernize United States insurance regulation has finally been released. The report, originally due January 21, 2012, was mandated as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In the report, the FIO calls for a “hybrid approach to insurance regulation that provides a practical, fact-based roadmap to modernize and improve the U.S. system of insurance regulation,” said Michael McRaith, Director of the Federal Insurance Office. “Importantly, this report reflects the dynamic nature of the regulatory system for insurers and provides an explicit path for state and federal regulatory entities to calibrate involvement going forward.”

“Today’s report details strengths and weaknesses of the current insurance regulatory system, considerations for determining where and how to modernize and improve that system, and a way forward to increase the effectiveness of insurance oversight in the United States, said Under Secretary for Domestic Finance Mary Miller. “This is a significant step in understanding and strengthening the current system to better protect American consumers.”

The FIO considered several factors in putting together the report including: systemic risk regulation with respect to insurance, capital standards, consolidated supervision, consumer protection and affordability, the degree of uniformity of state insurance regulation, and international coordination. A look at the costs and benefits of federal regulation over a variety of insurance lines was also required by Dodd-Frank, in addition to issues pertaining to competitiveness. All lines of insurance, excluding health, were examined.

A full copy of the report can be found here.

TRIA Is Not a Government Bailout

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The following is an excerpt from the RIMS executive report “Terrorism Risk Insurance Act: The Commercial Consumer’s Perspective.” The report is available for download here.

Much of the skepticism surrounding the need for the Terrorism Risk Insurance Act (TRIA) stems from nega­tive perceptions of the government bailouts handed out to various finan­cial institutions in 2008-2009 and the view that TRIA is a similar bailout for the insurance companies; TRIA, however, differs significantly in that the government’s role in TRIA is to act as a reinsurer, and not as a major creditor as was the case with the financial institution bailouts.

Reinsurance is a risk management tool that allows the primary insurer to shift certain risks to the reinsurer to reduce volatility, allow coverage of large risks and to free up capacity for the insurer. With TRIA the govern­ment is essentially acting as reinsurer. The government assumes some of the market terrorism risk and agrees to pay a portion of the losses over the $100 million threshold discussed earlier. The ability of the private market to shift some of the risks to the government in the event of a loss frees up capacity for the insurers, which is then made available to the consumer. Without the government acting in a reinsurance capacity, the private market would be forced to assume the entire risk, which would likely lead to little or no capacity at higher prices, particular in high risk areas.

It is important to note that the program only costs the government money in the event that the $100 million + 20% deductible threshold is reached. If losses remain below this level in any given year, then the private market is responsible for the entirety of those losses. Since TRIA’s enactment in 2002 the government has not made any expenditures outside of minimal administrative costs associated with setting up the program.

If the $100 million + 20% deductible threshold is reached, and the gov­ernment begins to pay its share of losses, there is a mechanism in place for the government to recoup those expenditures. In the years follow­ing the federal sharing of losses, but prior to September 30, 2017, the Secretary of the Treasury is required to institute a surcharge on insur­ers to recoup 133% of the claims paid by the government. This man­datory recoupment does not apply if the insurance industry’s aggregate uncompensated losses exceed $27.5 billion; however, the Treasury Secre­tary does retain the authority to apply a surcharge at his/her discretion.

Industry Comments on CMS SMART Act Implementation

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On September 19, the Centers for Medicare and Medicaid Services (CMS) issued an interim final rule (IFR) addressing implementation of the SMART Act (otherwise known as the Strengthening Medicare and Repaying Taxpayers Act) , and specifically Section 201 of the Act, which requires CMS to develop a final conditional payment process that would take 120 days from beginning to end. The IFR issued by CMS would significantly extend this process beyond the 120-day deadline, and likely undermine the SMART Act’s intended improvements of the Medicare Secondary Payer (MSP) process. Several industry groups took the opportunity to express their disappointment in CMS’s efforts.

The Risk and Insurance Management Society (RIMS) called on CMS to rescind the IFR and reissue a proposed rule:

“While we commend the Centers for Medicare and Medicaid Services for initiating the SMART Act implementation process, we are disappointed that it chose to issue an IFR rather than promulgating a rule through the regular notice and comment process. We have serious concerns that CMS failed to comply with statutory requirements to implement a final conditional payment process by October 2013, and that the process it has chosen to implement in the interim rule allows for over twice the statutory 120-day period to obtain a final payment amount. We urge CMS to rescind its IFR and to re-issue a new proposed rule through the regular comment process.”

An American Insurance Association (AIA) task force also found the IFR severely lacking:

“AIA’s Task Force does not support the method, manner and time frames contained within the IFC for obtaining final conditional payment amounts via a web portal. The main purposes of the SMART Act are to allow the parties to resolve claims in a timely manner, with finality, to streamline compliance and make it more practical, while ensuring that CMS receives reimbursement for conditional payments quickly. The IFC as written undermines these goals, imposes impediments to prompt claim resolution, allows CMS to delay providing necessary information to beneficiaries and insurers and will not accomplish these goals. The IFC states it specifies the process and timeline for expanding CMS’ existing MSP web portal to conform to the SMART Act. Unfortunately, the provisions of the IFC do not comport with the SMART Act and in many instances go well beyond the purposes and provisions of the terms of the Act.”

The Medicare Advocacy and Recovery Coalition (MARC), a group created in 2008 by various stakeholders and beneficiaries to advocate for the improvement of the Medicare secondary payer system, stated that the IFR is in clear violation of Section 201:

“The IFR is in direct violation of Section 201, which explicitly required CMS to develop a portal process that, from beginning to end, took 120 days. The statutory language could not be more clear: ‘In the case of a payment made by the Secretary pursuant to clause (i) for items and services provided to the claimant, the claimant or applicable plan (as defined in paragraph (8)(F)) may at any time beginning 120 days before the reasonably expected date of a settlement, judgment, award, or other payment, notify the Secretary that a payment is reasonably expected and the expected date of such payment.’ The language of Section 201 is unambiguous; the entire process – from beginning to end – is to take 120 days, which is triggered by the notice, and which includes the 65 day response period within the 120 day period in which the Secretary is to provide the final number.”

An interim final rule differs from typical proposed rules and regulations in that it is in effect even as the public is still commenting on the proposal. The comment deadline for this IFR was November 19. It remains to be seen what, if any, changes CMS will make in response to the comments.