Insurance Task Force Eighth Meeting Minutes

NCSL EXECUTIVE COMMITTETASK FORCE TO STREAMLINE AND SIMPLIFY INSURANCE REGULATION

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EIGHTH MEETING
April 24, 2003 -- Boston Park Plaza Hotel
Boston, Massachusetts

MEETING MINUTES

Task Force Members
Senator Kemp Hannon (NY), Co-chair
Representative Frank Mautino (IL), Co-Chair
Representative Donna Stone (DE)
Ryan Wilson (MD)
Senator Ben Robinson (OK)
Senator David Bates (RI)
Representative Kathleen Keenan (VT), NCOIL President

Regulators
Commissioner Vaughan (IA), NAIC Immediate Past President
Michael Tobin (NY)

Staff
Andrew Beal, NAIC
Cheye Calvo, NCSL
John Fielding, NAIC
Tim Tucker, NCOIL

OPENING AND INTRODUCTION

Senator Hannon opened the meeting on Thursday, April 24, 2003, at 10:17am. He said that following the very successful meeting in New York in March, the goal of this meeting is to begin to move forward to a recommendation to the NCSL Executive Committee. He said there are other developments worth noting, including state actions and the NCOIL meeting in Savannah, Georgia in February. He also said there are a number of amendments that have been proposed that are in the packet, and that he wanted to discuss the process of amending the document. He said, from his perspective, this meeting was a working meeting and a discussion of where the Task Force is going.

Representative Mautino said that he looked forward to going through the comments on the Compact and discussing the amendments. He said the goal was to ready the Task Force to move a recommendation to the NCSL Executive Committee in San Francisco. In the afternoon, he said the Task Force would focus on property and casualty (P/C) insurance issues. He said that there was a draft statement of principles on the regulation of P/C insurance in the packet. With a good working meeting, the Task Force could be ready to bring forward a work product very soon, he said.

INTERSTATE INSURANCE PRODUCT REGULATION COMPACT

Senator Hannon said that he wanted to discuss the formal mechanism for amending the Compact. He mentioned that the Indiana legislature had considered amendments to the model act. At the request of Senator Hannon, Bryan Cox with ACLI said that Compact legislation had died for the year in Indiana with the understanding that they could return to the issue next year. Commissioner Vaughan said that the Indiana Senate enacted the NAIC model, but there were amendments in the House. Senator Hannon said that it raised the question about how to deal with amendments.

Commissioner Vaughan said that the NAIC Interstate Compact Implementation Working Group (NAIC Working Group) is co-chaired by Iowa and North Dakota and has members from Utah, Maine, New York, New Jersey, Alabama and Indiana. The NAIC Working Group has looked at the amendments before the Task Force. However, the Iowa assistant attorney general has proposed some language, and she said that she asked him whether he planned to submit it to NCSL. She said that she would share it. However, when the NAIC adopted the Compact, it did so for the consideration of state policymakers. She said that there was an understanding that it would go to NCSL and NCOIL and that these organizations may suggest amendments. Therefore, if the Task Force wants to make amendments, she would happily engage the NAIC Working Group in that process.

Senator Hannon said that NCSL should make recommendations for the NAIC to consider. He asked Representative Keenan to speak for the NCOIL process. She said that NCOIL generally supports the compact idea, but it does have some members who oppose it. The support is not 100 percent but maybe 90 percent. She said she wanted to know, if amendments are offered, what the NAIC will do with the amendments, especially considering the number of new commissioners. Commissioner Vaughan said that turnover is a challenge, which is why most of the members of the NAIC Working Group are people who were participating in the discussion before and know the issues. She said they would have to go through an education process when they take it back to their members, but this has to be done at some point, regardless. She said the question is whether to go through that process as they consider amendments or do they reach an understanding between NCSL and the commissioners who are involved in the process.

Representative Mautino asked the NAIC Working Group's positions on the amendments before the Task Force. Commissioner Vaughan that the Working Group generally agreed that the amendments addressed the issues and misperceptions that have been discussed since the Compact was adopted. Professor Zimmerman recommended most of the proposed amendments, she said. The amendments do not change the intent but rather clarify the language.

Representative Mautino asked if any objections have been raised to the proposed amendments. Commissioner Vaughan said that the ACLI has some problems with the wording but not the intent. Mr. Cox concurred. Commissioner Vaughan said that there were some issues with the seventh amendment on the financial audit. Representative Mautino asked Commissioner Vaughan what was the best way for the Task Force to proceed to make amendments to the document. Commissioner Vaughan said that her thought was that the Task Force would act and then the NAIC would act. Given the new commissioners, she said that a recommendation from NCSL would be helpful.

Senator Hannon suggested that the Task Force go through the amendments. Senator Hannon asked Gayle Yeomans with New York Life, who chairs the ACLI Product Regulation Task Force, to join the Task Force at the table. Senator Hannon said, for the purpose of disclosure, Ms. Yeomans once served as staff to a committee that he chaired in the New York Assembly.

Proposed Amendment 1: Public Body

Senator Hannon said that the first proposed amendment (PA1) basically clarifies that the Compact is a joint public entity. Representative Mautino asked Andrew Beal with the NAIC to discuss PA1. Mr. Beal said that PA1 came from Professor Zimmerman in response to the Cox Report^*, which argued that the Compact would be a private entity. From the beginning, Mr. Beal said that the NAIC intended the Compact to be a public, multi-state agency. The legal research and case law refers to an interstate compact as a joint public agency. He said that PA1, therefore, clarifies that the Compact would be a joint public entity.

Representative Mautino asked if anyone had any comments. Mr. Yeomans said that the ACLI Task Force has met and discussed these amendments and that they not have any problems with the spirit of the amendments. She said that they do have some questions about wording. They do not have a problem with PA1, she said. Representative Mautino asked if anyone objects to PA1. Seeing no objections, he said that the Task Force recommends PA1.

Proposed Amendment 2: Open Meetings, Code of Ethics and Bylaws

Representative Mautino said that the second proposed amendment (PA2) deals with opening meetings. Mr. Beal said that NCSL staff had prepared a summary of each proposed amendment above the actual text. PA2 also was proposed by Professor Zimmerman to make the process more transparent and open to the public. Mr. Beal said that the NAIC Working Group does not view PA2 as a substantive change to the language but rather clarifies that the public would have access to the meetings. It also requires the Commission to promulgate a code of ethics to address activities of the Commission Members and employees and to publish the bylaws and make them accessible in every member state. He said that the ACLI has some questions about the type of meetings that would be open but that is something that could be clarified. They are concerned that a meeting between an insurer and the Commission would be subject to the open meeting provision or would it be a private discussion, he said.

Representative Mautino noted that the Task Force requested language from consumer groups on the Compact. He said that, despite repeated requests, no language was submitted. Cheye Calvo with NCSL said that he reminded Birny Birnbaum with the Center for Economic Justice, who addressed the Task Force on these issues in New York and had originally intended to attended this meeting. Mr. Birnbaum said that he would provide language to the Task Force, but did not, Mr. Calvo said.

On the opening meeting provision, Senator Hannon said that it may be important to clarify what would be an open meeting and what would not. He said that he had heard comments that the NAIC over-relies on in camera meetings by the NAIC. Although he had no particular knowledge of this, he said that it might be helpful to clarify the language to address this concern. Commissioner Vaughan said that the original language of the section required votes that occur in camera to be made public within 24 hours and that the NAIC Working Group changed it to "as soon as practicable."

Ms. Yeomans echoed Mr. Beal's expression of the ACLI's concern. She said that this concern was furthered by the use of the phase "guaranteeing the rights of citizens to attend," which connotes a bill of rights wording. She said that the enumerated exceptions include commercial secrets, but this may not include product filings. Second, she said that it was unclear whether PA2 requires the Commission to make public the votes on whether to close a meeting or all votes taken during a closed meeting.

Representative Mautino asked if NCOIL had considered the amendments. Tim Tucker of NCOIL said that NCOIL members have raised a number of these issues over the last year. NAIC had given NCOIL assurances that these issues would be addressed in the bylaws. Although NCOIL members would not object to these amendments, there was a fear of opening the document to put too much into the four corners of the Compact model act. The concern may be more political than policy oriented, he said. Representative Mautino said that, with the concerns raised by the attorneys general, these issues are ones that they would have to address in 50 state legislatures anyway. Therefore, he said addressing them before the document was complete increases the likelihood for a clear drafting. Mr. Calvo said that, in New York, Peter Gallanis of NOLHGA shared some of the experiences of the insurance receivership compact when it was under review by state legislatures in the early to mid-1990s. Mr. Gallanis said that these were exactly the types of provisions that legislatures added, including some pertaining to open meetings while other were ones that he thought were valuable to address valid issues raised in the Cox report, Mr. Calvo said.

Representative Mautino summarized the discussion saying that the Task Force agreed to hold the first part of PA2 but recommends the second and third parts. On the third part, Ms. Yeomans noted that, in the last lines of the third part of PA2, "party States" should read "Compacting States," which is a defined term.

Proposed Amendment 3: Commission Records

Representative said that the third proposed amendment (PA3) relates to commission records. Mr. Beal said that this amendment tracks with PA2 to make the Compact more open and accountable. He said that he was aware of one issue raised by the ACLI, which was the mention of "data, information and records." The current language mentions "information and official records," he said. There is a question why "data" was added and whether it needs to be there. There also is a question whether there should be specific language to protect the confidentiality of trade secrets.

Senator Hannon asked if would be useful to have a review of states' public meetings and public information laws so that they do not ask to have a higher standard for the Compact than what is used currently by states. Mr. Beal said that it is mostly a timing issue and that most states keep product filings confidential until after filings are approved. The current wording leaves the issue of when to disclose the information up to the Commission. Mr. Calvo said that the use of the term "promoting" for public inspection and copy direct the Commission to develop procedures that actively encourage public inspection as opposed to a more neutral term, such as "allowing." Ms. Yeomans said the main concern of the ACLI was what would be made public and when it would be made public. She said that the inclusion of the term "data" in the text might not be necessary. She also said that, as Mr. Beal said, product filings generally are not made public until after they are approved and, even then, some portions of the filings are not released at any point.

Senator Robinson asked Commissioner Vaughan what would happen in Iowa regarding access to information. Commission Vaughan said that the filings are confidential until they are approved, when they are made public with the exception of certain items that represent trade secrets that the company can ask to be protected. Senator Robinson asked if that is similar in all states. Commissioner Vaughan said that it is not universal. She said that she thinks the issue of personal records is the most difficult in the Compact because there are a few states that make information public at the time the product is filed. Companies do not like that because it places them at a competitive disadvantage before they ever get to take the product to market. In Iowa, she said they maintain public records, which the public is welcome to review and copy.

Representative Keenan asked whether it would be a good idea to define "data." Senator Hannon said that there are court cases that address whether data is purely numeric information or whether it is broader. Commissioner Vaughan suggested that data could be a subset of information and, therefore, could be struck from the text. If stuck, the bylaws could define data under the context of information. Ms. Yeomans agreed that the term contributes nothing but confusion to the document. Ryan Wilson said that, in Maryland, does not use "data" in drafting language because data is considered synonymous with "information." The use of both terms implies that they are different, he said. Senator Hannon agreed. Representative Mautino asked NCSL staff to work with the NAIC to revise the amendment along the lines discussed by the Task Force.

Proposed Amendment 4: Enforcement

Senator Hannon said that the fourth proposed amendment (PA4) came from discussion among commissioners at the December NAIC meeting. Mr. Beal said that the NAIC did not want to open the floor to amendments in December, but the NAIC Working Group revisited the amendment that was discussed, made a few changes and now supported it. PA4 ensures that state insurance departments continue to have enforcement powers over violations of the standards that are set by the Commission. Commissioner Vaughan said that Article VIII Section 4 addresses the issue that, while the states retain enforcement authority, they may have different interpretations of the standards. However, there was concern that the provision was drafted too broadly. PA4, therefore, more specifically frames the Commission's authority to rule on violations by insurers, she said.

Mr. Calvo said that this provision was one of the issues most discussed by commissioners in San Diego. Some had argued that the document should not speak to the issue of interpreting product standards at all. Therefore, Commissioner Fitzgerald of Michigan and Commissioner Larson of Maryland actually negotiated the amendment at the commissioners' roundtable as a compromise position. In the end, the NAIC made the decision not to accept any amendments to the model act, and Commissioner Larson and possibly others voted against the Compact because the compromise amendment was not accepted. Had this amendment been made, Mr. Calvo said that it is possible that the Compact would have collected even greater support than the 37 votes that it received.

The Task Force agreed to PA4.

Proposed Amendment 5: Review of Commission Decisions

Representative Mautino said that the fifth proposed amendment (PA5) deals to the review of decisions by the Commission. Mr. Beal said that PA5 is based on a comment received from the Oregon insurance department after the Model Act was reviewed by the assistant attorney general. PA5 strikes language that says that the decision of the review panel shall not be able to be reviewed by any court. Mr. Beal said that, if the entire section is taken in total, it provides for the review of a decision to disapprove a filing to be available for review by a court based on an allegation that the Commission acted arbitrarily, capriciously, or not in accordance with the law. PA5 strikes language that the Oregon office of attorney general believes was unnecessarily confusing, but the true intent of the section remains the same, he said.

Senator Hannon said that he agrees with the amendment. Others did not have a problem with the amendment, and the Task Force accepted it.

Proposed Amendment 6: Rulemaking Procedure

Representative Mautino said that the sixth proposed amendment (PA6) relates to rulemaking procedures. Mr. Beal said that PA6 was proposed amendment recommended by Professor Zimmerman to address the issue of ensuring the public disclosure of Commission actions. Mr. Beal said that one added change in the second line is that it should specify the Model State Administrative Procedures Act (MSAPA) of 1981. Senator Hannon asked whether MSAPA had been amended and if the uniform commissioners created it. Mr. Beal said that he believed that it had not been amended and it was a product of the uniform commissioners. Senator Hannon said that he also would like to know in which states the MSAPA has been adopted and if it has been declared unconstitutional anywhere. Mr. Beal said that several states have adopted it and that he would provide that information.

Representative Mautino said that PA6 would be left for further review.

Proposed Amendment 7: Finance

Representative Mautino said that the seventh proposed amendment (PA7) relates to the confidentiality of financial accounts and reports. Mr. Beal said that PA7 was the one amendment about which the NAIC Working Group had outstanding questions. He said that it originated in Indiana during the legislatures' review of the model act. The legislator who proposed the amendment wanted to ensure that the entity operates in public and without secrecy. Mr. Beal said that PA7 differs from the language considered in Indiana in the last line, where it now reads "upon request" rather than "and shall remain confidential pursuit to Article VII herein." The members of the Working Group wanted to check how they handle the work papers for internal audits in their states, he said. In discussion with the outside auditors of the NAIC, Mr. Beal said that they would have problems making their work papers available for public review and that those papers would receive confidential treatment. On the other hand, he said that information pertaining to internal accounts is something that they would make public. Mr. Beal added that, while the outside auditors would prefer to keep their work papers confidential, the audit report would be made public and given to the governor and legislatures of every member state.

Senator Hannon asked if, by work papers, it meant papers by an independent accounting agency. Mr. Beal said that it was. Ms. Yeomans said that the ACLI would like it to be made clear that information would be kept confidential to the extent that work papers reflected information about insurance companies, specifically to the reference in the section to management and performance audits where the audit examined the efficiency and effectiveness of product review process. Mr. Cox added that this point was discussed by the Indiana legislature, and the sponsors of the amendment said that they were not interested in proprietary information of insurance companies. Senator Hannon asked if there was any discussion of what Indiana currently does. Mr. Cox said that there was not.

Representative Mautino summaries the Task Force's positions on the seven amendments. He said that the Task Force supported PA1. He said that they will continue to discuss the first part of PA2 but supported the second part and the third part, with "Compacting" substituted for "party." He said that the Task Force will continue to work on PA3 but agreed to strike the reference to "data." He said that the Task Force supported PA4 and PA5. On PA6, he said that there were questions on how many states use MSAPA. He said that PA7 remains under consideration.

Commissioner Vaughan said that she would like to have the language proposed by the Iowa attorney general discussed. She said that she hoped that attorneys general would propose it themselves but thought that it should be considered. She also said that she had not been successful engaging the National Association of Attorneys General (NAAG) in the process. Senator Hannon said that he had put the proposition to the New York attorney general but had not heard back. A member from Connecticut had tried to do the same. Commissioner Vaughan said that the ACLI may have been trying to speak with the Oklahoma attorney general and that she may try to pursue that route again. Attorney General Edmondson from Oklahoma was the president of NAAG and signed the Cox Report, she said, and there was hope among some that the amendments that are being considered my change his position on the Compact.

Mr. Calvo said that he had spoke with NAAG staff, who said that the association was not inclined to take an official position on the Compact but that attorneys general may engage the process individually. Mr. Calvo said that Senator Robinson had said that he might speak to Attorney General Edmondson, who is his constituent. He also said that there was little evidence to suggest that attorneys general were engaged personally in the issue and that what interest there was seem to exist at the staff level. Commissioner Vaughan echoed Mr. Calvo's comment and said that the Iowa language was developed by an assistant attorney general. She said that, when she spoke with Attorney General Tom Miller on the language, he did not seem to feel strongly one way or another about it.

Senator Hannon said that he has experienced with the New York health department that two senior deputies can have very different points of view so that neither position is the official position of the health commissioner. Therefore, he said that he thinks that the Task Force needs to formally ask attorneys general directly. Ultimately, he said that attorneys general might not want to get involved to directly influence the Compact, but they will be of a major indirect influence when it is considered in their state.

Representative Mautino said that the Task Force might want to make a formal recommendation to the NAIC on the amendments that it supports. He also asked that NCSL staff to work with the NAIC and ACLI on the remaining amendments to reach draft language for discussion during a conference call prior to the NCSL Annual Meeting. Representative Stone moved a motion, which was adopted by the Task Force unanimously.

Representative Stone raised the issue of the timetable to resolve outstanding issue by the NCSL Annual Meeting in July. Commissioner Vaughan said that the NAIC meets around June 20. She said that it would work if they can resolve the proposed amendments at that time. Representative Stone asked if it is reasonable to resolve not just the amendments that the Task Force approved but all proposed amendments finalized by then. Commissioner Vaughan said that she would like to approach her members about all the amendments in June. Representative Stone said that if we miss the window of opportunity in July then the issue turns over to the next calendar year. Representative Mautino said that, as of that point, the Task Force had resolved a number of issues and that he would like to have the parties agreed to language quickly as to present the amendments to the NAIC as a complete package.

Commissioner Vaughan asked, if the NAIC agreed to the amendments, would NCSL then endorse the Compact. Representative Mautino said that the Task Force is prepared to go to the NCSL Executive Committee to recommend the Compact. Representative Stone asked about the timetable for Annual Meeting. Mr. Calvo said that the Task Force has reserved a time to meet in San Francisco on Monday, July 21, which is the first day of the NCSL Annual Meeting. He said that the NCSL Executive Committee meets the next morning on Tuesday, July 22. If the Task Force forwarded a recommendation to the Task Force, it could vote at its meeting on July 22 or it could defer the issue to a later meeting. He said that NCSL Immediate Past President Senator Stephen Saland of New York recommended that the Task Force make a presentation to the Executive Committee at its May meeting in Quebec so that the Executive Committee is prepared to deal with the issue in San Francisco. Representative Mautino asked when the Executive Committee would meet after San Francisco. Mr. Calvo said that it would not meet again until October.

Mr. Calvo asked about a comment made by Senator Hannon about contacting attorneys general and state legislative leaders and committee chairs on the Compact. He suggested that the Task Force send letters to NAAG and state legislatures to inform them of the work of the Task Force on the Compact and solicit input. Senator Hannon again raised the example of the streamlined sales tax project. He said that that project had states pass laws to join an agreement to appoint legislators to a commission, which drafted the agreement. The process helped familiarize legislative leaders and staff about the effort. He said that he is not sure, given the esoteric nature of insurance, about how familiar state legislatures are about the Compact. Therefore, he said that a letter to them would be helpful. Secondly, Senator Hannon said that it is important to reach out to attorneys general. If they do not want to have a formal position, that is fine, but he said that it is important to ask them. Mr. Tucker said that the prospect of a formal pronouncement from NAAG remains a lingering question. He said that something needs to be done to draw attorneys general into the process because for attorneys general to issue the letter they did in December and then not follow up is unacceptable. Representative Mautino said that it would important to mention in the letter than many of the amendments that the Task Force has considered address the issues raised by attorneys general.

Representative Mautino raised the issue about holding a series of conference calls to consider the remaining proposed amendments to the Compact. Mr. Calvo suggested calls in early June to complete the work with the amendments and then calls after the NAIC meeting in late June possiblely to consider a recommendation to the Executive Committee. He also noted that NCOIL meets in early July. Mr. Tucker said that NCOIL meets July 10-13 in Williamsburg, Virginia.

Senator Hannon asked whether it would be a good idea to approach other organizations, such as CSG or ALEC. Commissioner Vaughan said that the NAIC had not approached ALEC, but that would be a good idea. She said that they have approached CSG about speaking at its fall meeting. CSG has taken an active role in interstate compacts in the past. Mr. Calvo said that he had shared information on the Compact with ALEC staff at their request and that a Task Force member, Senator Owen of Colorado, serves on the ALEC executive committee.

The Task Force recessed until 1:00pm for lunch.

PROPERTY AND CASUALTY INSURANCE ISSUES

Senator Hannon called the meeting back to order and said that the remainder of the meeting would deal with property and casualty (P/C) insurance issues. He said that, as was discussed at the New York meeting, NCSL staff had prepared a draft statement of principles for the regulation of P/C insurance under the direction of the co-chairs. He said that the Task Force is just at the beginning of the process and that the draft is for discussion purposes only. He said that there is a need for the members of the Task Force, NCOIL, others in the states, insurance commissioners and interested parties to review it. He stressed that the nature, tone, scope, and depth of the statement of principles is something to explore. Even though it is nothing as binding as a model state act, he said that it still has implications.

Senator Hannon asked Mr. Calvo to provide an overview of a recent congressional subcommittee hearing on P/C insurance issues. Mr. Calvo said that the U.S. House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, chaired by Congressman Richard Baker of Louisiana, held a hearing on April 10, 2003, titled "The Effectiveness of State Regulation: Why Some Consumers Can't Get Insurance." He said that the speakers at the hearing were directed to discuss the positive features of regulatory systems in some states, notably Illinois and South Carolina, and to call attention to problems in other states, notably Louisiana and New Jersey. Mr. Calvo said that the speakers included several well-known and respected national experts, specifically Robert Hartwick of the Insurance Information Institute, Commissioner Ernst Csiszar of South Carolina, and former-Commissioner Nat Shapo of Illinois. Although it was an opportunity for the subcommittee to discuss P/C insurance issues, Mr. Calvo said that the hearing did not explore the issue in a comprehensive way and that it avoided any discussion of many political concerns that state legislators face regularly when addressing these issues. He said that the subcommittee also began to discuss the possibility of a federal proposal to mandate that the states follow a competitive system of rate regulation based on the Illinois model. Although that it has not bee introduced, Mr. Calvo said that he hears the proposal is gaining support and that the Independent Insurance Agents and Brokers of America (IIABA) advocates this approach.

Regarding the state of principles, Senator Hannon said that he had some comments but wanted to encourage members to share their view. He asked Mr. Calvo to give the Task Force an overview of the draft. Mr. Calvo said that the discussion draft attempts to pull together a number of threads that have emerged during first seven meetings of the Task Force. He said that the draft begins by framing the strong position of NCSL that states should continue as the sole regulators of the business of insurance while recognizing that changes to the state system are required if states are going to maintain this role.

Mr. Calvo said that the specific bullet items pull from discussions held by the Task Force. The first bullet comes from many meetings, but more recently from the discussion in New York spurred by the presentation of Dr. Phil O'Connor, who argued that, while it may not be appropriate for all states to adopt the Illinois model, greater experimentation with competitive systems would be beneficial. Therefore, the bullet point encourages states to experiment with market-based systems without proscribing exactly what the reforms should be. The second bullet pertains to commercial policies. Mr. Calvo said that then-Ohio Insurance Director Lee Covington presented to the Task Force the NAIC commercial lines modernization model act at the June 2002 meeting in Philadelphia. Therefore, the second bullet deals with this area where the NAIC has found broad-based support, he said. The other bullet items deal with broader issues that have been raised thoroughout Task Force meetings, such as clarifying state requirements, streamlining regulation, shifting resources to market conduct, anti-fraud efforts and financial regulation. He said that the fifth bullet expresses support for NAIC's modernization efforts. Finally, he said that the sixth item speaks to legislative oversight to encourage regulatory modernization and industry participation, which was raised by Superintendent Greg Serio of New York at the New York meeting.

Representative Mautino said that he understood that some interested parties had comments on the draft and asked them to come to the table. JoAnne Kron of Allstate said that, following that last meeting, representatives from AIA, NAMIC, NAII, State Farm, Allstate, and IIABA submitted to NCSL staff a proposed draft statement of principles. They received a copy of the draft statement of principles that morning and managed to meet that morning to prepare some suggested changes, which was distributed on the hotel stationary.

Senator Hannon suggested that the Task Force review the draft statement by section. In the second paragraph, Senator Hannon said that he is not sure that the states are the "sole regulator" because there is residual power in the federal government. He suggested that it should read that the states are the "primary regulator." He said that it should say the states regulate well and that they do with it with more flexibility and greater speed than the federal government could ever do it. He added that, in addition to serving the economic needs of local markets, by doing it on a 50-state basis, the states well serve the national economy. He said it should say that the state system is working.

Representative Keenan asked what the Task Force planned to do with the statement of principles once it was adopted. Senator Hannon said that the Task Force would recommend it to the Executive Committee. He added that he also would like to receive the input of NCOIL members on the draft statement. He reiterated that the Task Force is just beginning this process. However, he said that he understands that NCOIL has a model that calls for free-market regulation rate regulation in both personal and commercial lines P/C insurance.

On the third paragraph, Senator Hannon said that he was not sure that the line about being part of the integrated financial marketplace applies as much to P/C insurance as it does to life insurance. Ms. Kron said that many financial institutions have the marketing goal of serving the complete financial needs of their customers from homeowners insurance to sophisticated investments. Therefore, they believe that they are part of the integrated financial marketplace.

Senator Robinson said that, in reading the statement, it seems to him that it makes the case for centralize federal control on insurance regulation. He said believes that the statements in the third paragraph are true but that he worries that it makes the case against the states. Senator Hannon said that the reason the Task Force has put P/C issues on the table is that the U.S. House subcommittee has put the issues on its worklist. Senator Robinson said that he know it is not the intent to make their case for them but is concerned that the statement may do that. He said he does not have changes in mind but thinks that Task Force should consider changes that would clarify the intent.

Senator Hannon then read the first bullet item. Wesley Bissett with IIABA said that the industry group saw the first bullet point directed at the speed to market issue. He said that the first suggestion was to change "experiment with" to "consider," which seems like a more active review of the issue. The second suggestion was to add a line that would "promote the more efficient introduction of new products into the marketplace," in order to address forms as well as rates. Then, he said, because they believe that the first bullet item sufficiently addresses the issue, they found the second bullet point unnecessary and could be deleted. He said that they also were concerned that the specific reference to commercial lines in the second bullet item could be read as leaving personal lines to the side.

Senator Hannon said that the second bullet item was added at his request. He said that he wanted the change because the NAIC has reached a position on commercial lines while the NCOIL model addresses all lines. He raised the question of whether it is necessary to achieve everything that is wanted or whether it is best to move forward in areas where success can be achieved. Therefore, he said, for people concerned about market-based reforms, commercial lines might be an appropriate place to begin. Senator Hannon added that he still is waiting for someone to defend the current system of P/C insurance regulation. Commissioner Vaughan said that the NAIC was able to reach agreement on commercial lines but was unable to reach agreement on personal lines because there are some commissioners who strongly support the prior approval system. Specifically, she mentioned the commissioner from North Carolina, where they have a system of rate regulation. Prior to the recent congressional hearing, the North Carolina commissioner wanted the opportunity to speak to the House committee. Therefore, while they may not have addressed the Task Force, she said that commissioners who support the prior approval system exist.

Neil Alldredge with NAMIC said that commercial lines modernization has begun. However, Congress is focused on personal lines, and he said that it would be a hollow message to say that we have reformed commercial lines but not personal lines. They likely would not respond well to that message, he said. Mr. Bissett added that they are not advocating deregulation and support the language in the first bullet item that says something in favor of relying "more heavily" on competitive forces.

Mr. Calvo said that he has had conversations with AIA, which is the one P/C insurance trade group that advocates federal regulation but also disproportionately represents large, for-profit, national commercial P/C insurers. He said that he understood them to no longer favor the threshold approach to commercial lines modernization but rather support more comprehensive reform. He added that he understands that commercial reform is their principal concern. Tammy Valesquez with AIA said that Mr. Calvo was correct. She said that AIA is pursuing a dual system of state and federal regulation but continues to support state reforms. She added that the threshold approach, which differs across states, has not solved complications for national and international writers. Senator Hannon asked if AIA prefers a more uniform approach to commercial lines regulation to allow them to role out national products more quickly. She said that was correct. She added that AIA would not support deleting the second bullet item.

Senator Hannon said that, when the federal government adopted small group health insurance provisions in HIPAA, he was surprised because of the variations among state definitions of small groups. He said that the reason that Congress could act was because states already had adopted the laws. Therefore, when you talk about uniformity, he wondered if, by achieving it, we bring about the situation that Senator Robinson mentioned, which is setting the federal government up to act and doing the exact opposite of what is intended.

Senator Hannon read bullet items three and four. There were no substantive suggestions. On bullet item five, Senator Hannon said that industry recommends elimination of the phase "to strengthen regulation" before "to monitor market competition and company practices." Mr. Bissett said that the suggestion aimed to reduce the number of prepositional phases in a row.

Senator Hannon read bullet item six. Roger Schmelzer with NAMIC said that he was not sure where legislatures would have the authority to investigate whether the industry was participating in a reforms. He said that NAMIC companies want to participate in reforms. Mr. Calvo cited comments at the New York meeting by Superintendent Serio in which he criticize P/C insurers for not participating in what he called "speed to market" reforms. Mr. Calvo said that the criticism was directed at insurers who file generic products in all states, which require regulators to identify state-specific requirements for the companies and respond in writing. He said that Superintendent Serio expressed frustration that insurers were not using SERFF and product filing checklists or submitting their products in a way where they could be reviewed more efficiently. Superintendent Serio suggested that state legislatures could use investigation and oversight authority to make sure that departments are making reforms but also to apply pressure for the industry to participate. Senator Hannon said that he participated in an industry meeting in New York, which also included interaction between regulators and industry that revealed that the process of moving to electronic filing and checklists is more complicated than it may seem. Commissioner Vaughan said that she wanted to echo Mr. Calvo's comment that companies commonly come out with a new product and file in all states, in the word of one representative, "to see how many stick to the wall." As regulators have attempted to improve the process, she said that they have realized that change in the industry is as difficult as change on the regulatory side. Mr. Schmelzer said that he had heard these concerns before and now better understood the sixth bullet item.

Senator Hannon said that he encourages people to continue to make comments about concepts that should be added or deleted or perceptions about the overall thrust, such as the one that Senator Robinson offered.

ROUNDTABLE DISCUSSION AND TASK FORCE TIMETABLE

Regarding the process of moving forward with the statement of principles, Senator Hannon said that, if people are in general agreement, he does not seem a reason for the Task Force not to recommend a statement of principles to the NCSL Executive Committee in San Francisco. However, if it becomes a matter of philosophical disagreement, he said that he thinks there needs to be further discussion. He said that the Task Force will not meet again until San Francisco, but they have agreed to hold conference calls. Mr. Calvo said that the Task Force is scheduled to complete its work at the NCSL Annual Meeting and that its reauthorization is unlikely. Therefore, he said, the ninth and final meeting of the Task Force is scheduled for Monday, July 21, 2003. He added that the Financial Services Committee could continue the unfinished work of the Task Force, and certainly will continue to work with the NAIC, NCOIL and other interested parties on these issues once the Task Force expires.

Representative Mautino said that he would rather complete the statement of principles in order to recommend it to the Executive Committee with the Compact in San Francisco. He said that he would prefer to resolve the issues during the conference calls. Representative Stone said that she believe that that timetable was quite reasonable. Looking at the suggestions of the industry to the draft statement, other than the elimination of bullet item two, she said that the objections are minimal. She said that it is not anywhere near the monumental task of finding agreement on the Compact.

Mr. Schmelzer asked Commissioner Vaughan how the NAIC planned to engage with the Task Force on these issues. Commissioner Vaughan said that it would either be the "C" or P/C Committee or the Government Affairs Committee but likely the "C" Committee. Mr. Schmelzer asked, then, how would NCSL continue to engage NAIC and NCOIL in return. Senator Hannon said that the NCSL created the Financial Services Committee in response to the changing marketplace to create an ongoing forum to discuss these issues. To be successful, he said, the NCSL Committee needs to develop a working relationship with NCOIL, which has been notably successfully at what they do.

Representative Mautino thanked everyone for the work at the meeting. The Task Force adjourned at 2:24pm.