The policy industry experienced significant and vary forms of new legislation and regulation during the last ten. Below, we highlight what we view as the crown 10 of these legal and regulative changes .
1. Dodd-Frank Act
In reception the 2007-2008 fiscal crisis, Congress acted to implement major legislative reforms for addressing systemic gamble in the fiscal markets through the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. A phone number of these reforms directly or indirectly affected the indemnity diligence : federal Insurance OfficeThe FIO is nowadays a unit of the U.S. Department of the Treasury and effectively serves as a federal think tank for growth of federal policy positions on policy regulation and the federal liaison to submit policy regulators and their alien counterparts. specifically, the FOI ’ sulfur charges are :

  • Monitoring all aspects of the insurance industry (except health insurance, some long-term care insurance, and crop insurance), including the identification of gaps in regulation of insurers that could contribute to financial crisis;
  • Monitoring the extent to which traditionally under-served communities and consumers, minorities, and low-and moderate-income persons have access to affordable insurance (except health insurance);
  • Making recommendations to the Financial Stability Oversight Council about insurers that may pose a risk, and to help any state regulators with national issues;
  • Administering the federal Terrorism Insurance Program;
  • Coordinating international insurance matters;
  • Determining whether state insurance measures are preempted by covered agreements; and
  • Consulting with the states and state insurance regulators regarding insurance matters of national importance and prudential insurance matters of international importance.

now the FIO publishes an annual report on the insurance diligence, which highlights marketplace developments, emerging issues and legal and regulative changes. initially when the FIO was created, there was some tied of apprehension among the state insurance regulative and legislative communities and insurance industry that the FIO would spawn far federal invasion on the long-tenured primary regulative domain of the states over the business of policy established by the McCarran Fergusson Act in 1943, but that has not occurred.

Redefining Swaps Products
In the wake of the fiscal crisis, fiscal markets regulators questioned the functional differences between fiscal derivatives products, such as citation default option swaps, which were a major cause of the fiscal crisis, and insurance products. The leave was new regulations from the U.S. Securities and Exchange Commission and Commodities and Futures Trading Commission broadly defining a swap .
however, the policy industry and express insurance regulators were quick to defend their turf and successfully established an policy merchandise carve-out from the new barter definition. An insurance merchandise is not considered a trade if it meets any one of three offprint, condom harbor, tests : ( 1 ) the product safe seaport, ( 2 ) the insurance grandfather provision or ( 3 ) the count intersection safe harbor .
Systemically Important Financial Institutions
One of the Dodd-Frank Act ’ s key features is the designation of systemically important fiscal institutions, or SIFIs, which when then designated are subjugate to rigorous das kapital adequacy, liquidity, solvency and regulative report requirements and supervision by the Financial Stability Oversight Council, another Dodd-Frank Act created federal governmental agency. A SIFI is a trust, insurance or early fiscal institution that FSOC determines would pose a serious gamble to the U.S. economy if the entity were to collapse .
In the wake of the Dodd-Frank Act, FSOC tagged respective insurance holding companies as SIFIs : american International Group Inc., General Electric Capital Corp., MetLife Inc. and Prudential Financial Inc. All of the nonbank groups of companies have since lost their SIFI designations. MetLife won its challenge to its appellation in court in 2016 .
creation of Consumer Financial Protection Bureau
While the CFPB ’ sulfur legal power is limited to the specific consumer fiscal products and services referenced in the CFPB Act ( and potential other future consumer fiscal products and services that the CFPB could add by regulation ) and by and large excludes policy products, the CFPB ’ s regulative assurance over “ service providers ” to “ shroud persons ” can extend to indemnity products like credit indemnity and guaranteed asset waivers where their purchase is financed by an car lend. indeed far, the CFPB has not attempted to flex its muscles into the policy diligence in any meaningful way .
2. Affordable Care Act
No law enacted during the prior ten changed the shape of the insurance diligence like the ACA. Signed into law in 2010, and largely uphold by the U.S. Supreme Court in National Federation of Independent Business v. Sebelius in 2012, and with major provisions of the landmark law taking effect in 2014 ; the ACA reimagined health worry coverage in the United States .
The largest foray into direct federal regulation of indemnity in decades, ACA, among early things : eliminated preexisting condition exclusions ; required individuals to obtain health policy coverage or pay a tax penalty ; mandated that health insurance coverage include certain health essential benefits and eliminated annual and life caps on such benefits ; created health care exchanges for the public to purchase policies ; mandated that health insurance carriers and big self-insured employers spend at least 80-85 % of premiums on health costs ; and importantly expanded Medicaid coverage .
In accession, the ACA established diverse risk-shifting mechanisms immediately applicable to the carriers, including reinsurance, risk corridor and risk adjustments, which intended to stabilize the market during the laws ’ implementation transitional periods .
While shifting political winds have resulted in significant roll backs of many of the ACA ’ south provisions, the law ’ second ramifications are however being felt today, with the Supreme Court having heard a case regarding the ACA ’ sulfur risk corridor program equitable last December and the question of the severability of its individual mandate or its wholesale annulment loom .
3. Nonadmitted and Reinsurance Reform Act
While technically a part of the Dodd-Frank Act, the Nonadmitted and Reinsurance Reform Act, which came into effect on July 21, 2011, stands on its own and revolutionized the excess lines and nonadmitted indemnity markets. Prior to the NRRA, each state had the authority to regulate nonadmitted policy products based on the gamble residing in such state and, in addition, could levy excess lines agio taxes in connection therewith. possibly most importantly, however, was that each state was able to impose its own excess lines eligibility requirements on nonadmitted insurers .
The NRRA changed all this and created uniform, national standards. In especial, entirely the dwelling express of the insured can regulate and tax a excess lines indemnity policy. The term “ base state ” is defined under NRRA as ( 1 ) the department of state in which an guarantee maintains its principal place of commercial enterprise ( in the commercial context ) or resident ( as to personal lines policy policies ) ; or ( 2 ) if 100 % of the cover risk is located outside the principal put of business or resident state then the state in which the greatest percentage of the insured ’ mho taxable premium is allocated .
The NRRA besides removed the authority of states to promulgate their own excess lines insurer eligibility standards early than establishing minimum capital and excess requirements. today, any insurance company licensed in at least one U.S. legal power may write excess lines occupation in all other states provided that it maintains at least $ 15 million in capital and excess or such other greater amount as determined by a detail state .
If an extraterrestrial being ( non-U.S. ) insurance ship’s company wishes to obtain excess lines eligibility, the NRRA requires that such insurance company obtain list on the quarterly listing of Alien Insurers maintained by the National Association Of Insurance Commissioners ’ International Insurer ’ s Department .
The NRRA has enabled the excess lines grocery store to grow and thrive at a critical here and now in the U.S. indemnity space, as technical initiation and the emergence of insurtech and cannabis deregulation drove demand for forte indemnity solutions that are much beginning serviced by the excess lines insurers until an admit market becomes established .
4. Terrorism Risk Insurance Act
The Terrorism Risk Insurance Act was passed in the aftermath of 9/11 to provide fiscal support for the ever-apparent necessitate for terrorism indemnity, particularly in certain business and population concentrated areas of the United States. In separate due to the global reinsurance grocery store retreating from assuming terrorism gamble exposures, the TRIA was enacted to provide a federal backstop in the form of reimbursement for insurance carriers that insure commercial place and casualty terrorism risks in the event of an act of terrorism that is certified by the U.S. Secretary of the Treasury .
Provided, however, that certain individual and industry-wide deductibles are met, and then only up to certain ‎capped losses, with applicable copayments as well.‎ The U.S. Department of the Treasury besides has the mighty to recoup payments from the policy industry by and large subject to formulas set forth under TRIA .
While the TRIA was primitively enacted in the first base decade of this century and no event has ever occurred, it was reauthorized in both 2015 and 2019, and the importance of these reauthorizations alone land the TRIA on our tilt. The policy industry has evolved to heavily rely upon the federal catcher of the TRIA, which requires that indemnity companies ( including excess lines insurers ) that provide certain kinds of commercial property insurance coverage on U.S. risks must make available terrorism indemnity .
Without the TRIA ’ s catcher, the price of terrorism coverage in certain bad areas could become prohibitively expensive or, if insurers are compelled to offer such coverage without the catcher, such carriers would be at gamble of getting wiped out by one catastrophic consequence. While the reauthorizations did not materially change the scope of the TRIA ( the most meaning changes surrounded the total sum of the backstop and industry-wide deductibles ), the TRIA will nowadays be in effect until Dec. 31, 2027, providing constancy to the U.S. policy markets well into the newfangled ten.

5. Department of Labor Fiduciary Rule

The U.S. Department of Labor promulgated its controversial alleged fiduciary rule to enhance investor protections for investment advice rendered by fiduciaries to Employee Retirement Income Security Act pension plans and person retirement accounts. This rule aimed to revise the long-standing Prohibited Transaction Exemption 84-24 and impose a best interest contract exemption requiring written investor disclosure statements related to fees and conflicts of interest, adhesiveness to impartial lead standards, adoption of raw policies and procedures, prohibition on classify military action waivers by investors and regulation of investment fees.

Life indemnity companies, their affiliated broker-dealers and record representatives and their agents selling securities, including variable policy and annuity products, deoxyadenosine monophosphate well as fixed and index annuities were all affected. however, the fiduciary principle failed to withstand its legal challenge when the U.S. Court of Appeals for the Fifth Circuit held in 2018 that the DOL overreached its authority and the rule was unreasonable .
6. Data Privacy and Security
Cybersecurity Regulation
The New York Department of Financial Services lead the commission in imposing new cybersecurity regulative requirements for NYDFS indemnity industry licensees ( deoxyadenosine monophosphate well as early types of fiscal services licensees ) aimed at protecting the security of personal information they collect and their information systems. The NAIC followed suit with its similar Data Security Model Act, which has now been adopted in some form in eight states .
California Consumer Privacy Act
The CCPA became effective on Jan. 1, 2020, but has a six-month delayed enforcement go steady. While its application is across about any type of business, it is a boastful deal for the indemnity industry in California to the extent the limited Gramm-Leach-Bliley exemption does not apply and may represent a fresh bell-weather privacy and security model police for early states deoxyadenosine monophosphate well as consideration by the NAIC in the future .
7. Principles-Based Reserves
The PBR approach path represents the most significant change in the underlie framework to the way the diligence determines biography policy reserves. Prior to the PBR approach, static formulas and assumptions were used to determine these reserves ; much resulting in excessive reserves for certain liveliness policy and annuity products and inadequate reserves for others .
The solution developed by the NAIC was to replace a inflexible rules-based approach with a principles-oriented set about, based upon each policy carrier wave ’ s own information. The PBR Valuation Manual became running in 2017, and has been adopted in 51 jurisdictions, and is now function of revised NAIC accreditation standards effective Jan. 1, 2020 .
8. heighten of Insurtech and Related Regulatory Responses and Reforms
In 2019, there was no escape from the ceaseless hum around insurtechs, as the industry attempts to innovate and become more agile and reactive to today ’ sulfur fickle, highly digitized, new ( but some old ) customers. But that was not the case 10 years ago as the indemnity diligence did not make any real quantum technical leaps since the dot-com meltdown in 2000 .
InsurTech Connect, which nowadays hosts at least 5,000 attendees at the annual conference, didn ’ deoxythymidine monophosphate even exist until 2016. however, every carrier is looking at ways of leveraging big data, machine learn, artificial intelligence, internet of things devices and individualized experiences to drive consumer feel, retention and engagement .
however, as many of these companies have realized, regulation has been dense to catch up and the impact of disparate rule over 51 jurisdictions has hampered the ability to scale in the same way engineering companies are able to do in nonregulated industries, and even in some regulated industries, such as fintech, scalability is easier than insurtech. Everything from inducement/anti-rebating laws, to carrier business flavorer requirements, to opaque interpretations of anti-discrimination laws has stymied insurtechs ’ emergence .
however, regulators are catching up for better or worse. On the one end, New York sent chills through the life insurance diligence with its Circular Letter No. 1 of 2019 ; which purports to restrict the ability of life insurers ’ use of external data sources unless they can prove that such manipulation does not and will not have a forbidden discriminatory impact .
On the other hand, states like Kentucky and Vermont have passed regulative sandbox legislation, allowing for greater initiation in testing scenarios in those jurisdictions. In the middle, is the NAIC, which has no less than three working groups focused on regulation big data/AI ; invention in anti-rebating laws ; and potential regulation of alleged bots. How all of these regulative initiatives may shake out will be share of the defining narrative of the adjacent decade .
9. Credit for Reinsurance Amendments and Covered Agreements
traditionally, in orderliness for alien insurance companies to reinsure risk from U.S. cedents, collateral needs to be established for the benefit of policyholders, frequently in an come in excess of 100 % of the hazard reinsured. however, in 2011, to mitigate this substantial collateral charge, the NAIC amended its Credit for Reinsurance Model Law to allow for reduce collateral to be posted by reinsurers domiciled in particular “ qualified jurisdictions ” that obtained and maintained certain fiscal credit scores. These reinsurers are referred to as “ certified insurers ” by the states that have adopted the CRML .
On June 25, 2019, the NAIC further amended the CRML to memorialize the bilateral “ covered agreements ” entered into between the U.S. and the E.U. in 2017, a well as between the U.S. and the U.K. in 2018. These brood agreements prohibit the application of reinsurance collateral requirements to certain qualifying insurers domiciled in the forfeit jurisdictions .
To the extent that states continue to apply the “ reduced collateral ” standards of the 2011 CRML amendments to qualified reinsurers domiciled in the E.U. or the U.K. rather than eliminate collateral requirements as to such reinsurers entirely, such states ’ laws will become preempted by September 2022 .
The 2019 amendments to the CRML besides opened up a path for reinsurers domiciled in jurisdictions early than the E.U. and the U.K. to obtain zero collateral discussion if such jurisdictions qualify as a “ Reciprocal Jurisdiction ” and reinsurers seeking zero collateral discussion meet heightened rate and fiscal standards. It should be noted that not all states have adopted the 2019 amendments to the CRML .
The cover agreements entered into between the U.S. and versatile jurisdictions, ampere well as the multiple amendments to the CRML have vastly expanded access to reinsurance markets around the global as reduced ( or, in some cases, zero ) collateral requirements have made the price of doing reinsurance business in the U.S. significantly less burdensome. We expect to see collateral requirements further reduced over the future decade .
10. Risk Assessment Requirements for Holding Companies: ORSA, Enterprise Risk Reports and CGADs
The NAIC Solvency Modernization Initiative project kicked off in 2008, but was chiefly implemented during the past ten focused on enhancing group supervision and ongoing enhancements are being made to toolbox U.S. state policy regulators use for group-wide supervision. As function of SMI, the NAIC implemented three extra layers of self-reporting for policy companies : own risk and solvency assessment, or ORSA ; enterprise risk assessments ( Form F ) and corporate government annual disclosures, or CGAD.

Under ORSA, most large insurers ( over $ 500 million of direct and assume premium on a standalone footing or over $ 1 billion on a group basis ) must conduct an annual assessment and train and file a confidential ORSA summary report. ORSA ’ south goals are to foster an effective level of enterprise risk management and provide a company group-level perspective on risk and capital sufficiency .
similarly, the annual enterprise hazard judgment ( Form F ) regulative file was developed to identify material risks within the indemnity holding company system that could pose enterprise risk to the insurance company or insurers within the system. Unlike ORSA, Form Fs are required of every ultimate controlling person of an insurance company or indemnity group .
ultimately, the CGAD was developed to require across-the-board disclosure of determine policy companies ’ corporate government practices on an annual footing. This disclosure is made for each policy party group, and at the level at which ( 1 ) the risk appetite is determined ; ( 2 ) the earnings, capital, fluidity, operations, and reputation of the insurance company are oversee jointly and at which the supervision of those factors is coordinated and exercised ; or ( 3 ) legal indebtedness for failure of general corporate government duties would be placed .

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