A Look at the Federal Regulatory Landscape PRESENTED TO: FLORIDA SURPLUS LINES ASSOCIATION JULY 30, 2015

Transcription

1 A Look at the Federal Regulatory Landscape PRESENTED TO: FLORIDA SURPLUS LINES ASSOCIATION JULY 30, 2015 B Y : B E R N D G. H E I N Z E, E S Q. A A M G A E X E C U T I V E D I R E C T O R

2 What does E&S Really Stand For? The Exciting & Sexy side of the insurance industry

3

4 What is E&S Anyway? NRRA brings more attention to industry Impressions from the Hill MS HB 739: E&S carriers should be subject to data calls because authorized to do business MN JUA: Department of Commerce: E&S carriers should be subject to JUA assessment because authorized to do business MT fire tax: E&S carriers subject to fire tax because authorized to do business Preventing trial lawyers from finding ambiguities to defeat underwriting intent

5 US E&S Premium (In $ Billions) 2013: $36, : $30, : $31, : $31, : $32, : $34, : $36, : $38, : $33, : $33, : $32, : $ 6,281

6 U.S. Domestic Professional Surplus Lines - Best's Rating Distribution by Rating Unit vs. P/C Industry Best's Financial Strength Rating (FSR) Domestic Professional Surplus Lines Total P/C Industry Level Category # of Rating Units Percentage # of Rating Units Percentage SECURE RATINGS A++ Superior % % A+ Superior % % Subtotal % % A Excellent % % A- Excellent % % Subtotal % % B++ Good % % B+ Good % % Subtotal % % Total Secure Ratings % % VULNERABLE RATINGS B - D % % Source: A.M. Best data and research Total Rating Opinions % %

7 U.S. Property/Casualty Annual Impairment Count, Admitted Companies vs. Surplus Lines 70 Admitted Surplus Lines FICs (#) Source: A.M. Best data & research.

8 U.S. Property/Casualty Financial Impairment Frequency, Admitted vs. Surplus Lines 3.5 P/C Industry 3.0 Surplus Lines 2.5 Admitted Companies FIF (%) Source: A.M. Best data & research, BestLink Best's Statement File P/C, U.S.

9 Non-Admitted and Reinsurance Reform Act Update: 41 states now adopt 100% Home State tax assessment and collection 86% of nationwide S/L tax premium 4 states/1 territory remain in NIMA: FL, SD, UT, WY and PR 4 states have left NIMA LA: HB 256 (effective October 1, 2015) KS (effective January 1, 2016) ND (effective June 1, 2015) WI (trial run ended June 30, 2015 and not renewing)

10 Non-Admitted and Reinsurance Reform Act Update: Uniform nationwide implementation of the surplus lines insurer eligibility provisions not yet there. NRRA provided clear criteria for determining an insurer's eligibility to provide surplus lines insurance in each state. Some states have eliminated many pre-nrra eligibility requirements such as "white lists," a number of states continue to impose eligibility requirements beyond those outlined in the NRRA.

11 Federal Insurance Office

12 NARAB II Rep Blaine Luetkemeyer (R. MO), Chairman of House Subcommittee on Housing and Insurance July 8, 2015 Letter to FIO Director Michael McRaith Requesting details and timing on NARAB II Board appointments and implementation

13 NARAB II NARAB II will: streamline and improve the licensing process for approved nonresident insurance producers, eliminating duplicative licensing requirements for businesses operating in multiple states; improve the licensing process for nonresident insurance producers and strengthen oversight by state insurance regulators.

14 NARAB II NARAB II will: create the National Association of Registered Agents and Brokers (NARAB). allow nonresident insurance producers, after meeting and maintaining certain eligibility criteria, to operate in states where they pay a licensing fee preserve state insurance regulation and consumer protection provisions.

15 TRIA Update

16 TRIA Update The President s Working Group on Financial Markets (PWG) is mandated by the Terrorism Risk Insurance Act (TRIA) to conduct, on an ongoing basis, an analysis of the long-term availability and affordability of insurance for terrorism risk. The key findings of the PWG from the 2014 report were as follows: Insurance for terrorism risk currently is available and affordable. The availability and affordability of insurance for terrorism risk has not changed appreciably since Prices for terrorism risk insurance vary considerably depending upon the policyholder s industry and the location of the risk exposures. Such prices have declined since TRIA was enacted and, in the aggregate, currently approximate 3 to 5 percent of commercial property insurance premiums.

17 TRIA Update Take-up rates have improved since the adoption of TRIA and are roughly stable at 60 percent in the aggregate. The private market does not have the capacity to provide reinsurance for terrorism risk to the extent currently provided by TRIA. In the absence of TRIA, terrorism risk insurance likely would be less available. Coverage that would be available likely would be more costly and/or limited in scope.

18 TRIA Update Congress requires industry update by April 2016 NAIC Testimony Industry response / survey: Only 68.18% can readily identify earned premium associated with terrorism coverage for Providing prior calendar years becomes increasingly more difficult. For workers compensation, earned premium can be identified.

19 TRIA Update For property, high level information may be available. However, detail premium information may not be readily available for the following types of coverage: direct damage building, contents, building and contents, time element, and other ancillary coverages. For liability, high level information may be available. detailed premium information may be not readily available on products liability standalone, pollution liability standalone, umbrella/excess, D & O, and other ancillary coverages. A number of respondents indicated that they provide terrorism coverage at no additional charge. As a result, an insurer cannot account for earned premium associated with terrorism coverage included at no additional charge.

20 Flood

21 Flood HR 2901 / S 1697 clarifying definition of private insurance to include E&S Flood Insurance & Market Parity Act Rep. Dennis Roth (R. FL) 6/25/15: Referred to House Committee on Financial Services Response to lenders reluctant to accept E&S cover with equivalent terms and conditions to admitted market Biggert Waters Act of 2012 pulled PA Commissioner urges delegation to sponsor

22 Flood FL SB 1094 effective 7/1/15 Designed to increase number of insurers offering private flood cover to Floridians Offer flexible cover for flood that only covers amount left on mortgage Allows dwelling loss to be adjusted only on basis of ACV of the property Allows insurer to request certificate from OIR acknowlging the private flood policy equals or exceeds cover offered by NFIP

23 Transportation Network Companies Uber / Lyft Not passed in FL for second year in a row House & Senate versions vary of primary limits; UM/UIM and physical damage Senate precludes E&S cover Workers Compensation issues CA and other states pursuing TNC regulatory structure Background screenings

24 Transportation Network Companies Much of the coverage for TNCs is written in the surplus lines market No TNC legislation has been enacted that precludes surplus lines policies from providing the required TNC insurance. The following bills were implemented during the recent legislative session: AK, AZ, CA, CO, DC, GA, ID, IL, IN, KS, KY, LA, MD, MN, MT, ND, NE, NJ, NV, OK, SC, TN, TX, UT, VA, WA & WI TNC legislation is pending in MA, MI, OH, & PA NAIC monitoring insurance issues related to ridesharing through the Sharing Economy Working Group.

25 Cyber Security NAIC Action Subgroup / Research Consumer bill of rights Terms, conditions, definitions, exclusions

26 Data Breaches , by Number of Breaches and Records Exposed # Data Breaches/Millions of Records Exposed # Data Breaches # Records Exposed (Millions) Millions The Total Number of Data Breaches Rose 28% While the Number of Records Exposed Was Relatively Flat (-2.6%) * 2014 figures as of Jan. 12, 2014 from the ITRC. Source: Identity Theft Resource Center.

27 Data/Privacy Breach: Many Potential Costs Can Be Insured Costs of notifying regulatory authorities Regulatory fines at home & abroad Costs of notifying affecting individuals Data Breach Event Defense and settlement costs Lost customers and damaged reputation Forensic costs to discover cause Business Income Loss Cyber extortion payments Source: Zurich Insurance; Insurance Information Institute 27

28 Drones Freedom from Unwarranted Surveillance Act (FUSA) Took effect July 1, prohibits a person, state agency or political subdivision from using a drone to capture an image of privately owned property or those on the property including an owner, occupant or invitee with the intent to conduct surveillance.

29 Other Federal Issues Optional Federal Charter Effectiveness of NAIC Impact of large brokers due to continuing M&A s Drones Big Data, Analytics, Models Fraud (FL HB 157) Flying under the radar?

30 Advocacy: US Legislative & Regulatory Activity AAMGA engagement: US Department of the Treasury Office of Foreign Assets Control Federal Insurance Office Federal Reserve Government Accountability Office US House of Representatives Financial Services Committee Subcommittee on Insurance and Capital Markets US Senate Banking Housing & Urban Affairs Committee Subcommittee on Securities, Insurance and Investment

31 Advocacy: US Legislative & Regulatory Activity AAMGA engagement: National Association of Insurance Commissioners Surplus Lines Task Force CAT Insurance Working Group Terrorism Risk Insurance Implementation Working Group International Insurance Relations Committee Producer Licensing Task Force P&C Committee Solvency Modernization Initiative Task Force National Council of Insurance Regulators Member International Issues Task Force

32 Advocacy: US Legislative & Regulatory Activity Reauthorization of TRIA Financial Stability Oversight Council Systemically Important Financial Institutions Federal Insurance Office US Department of Treasury OFAC and FATCA Compliance Modernization of the Insurance Industry General Accountability Office National Association of Insurance Commissioners Uniform Eligibility Standards for Surplus Lines Insurers National Conference of Insurance Legislators Financial Services Roundtable CIAB, PCI, Big I, PLUS, LiiBA, LAAIA, LMA, MGAA

33 Collaborative Efforts with Lloyd s Coverholder Guidance Audit Scope Audits / Audits / Audits FCA Regulations AML/OFAC Guidance & Compliance Tribunalization Automation & Efficiencies

34 The Future Emerging Issues & Trends Committee Identify Evaluate Research Track & trend Report

35 AAMGA Emerging Issues & Trends Committee Record high capacity Wholesale consolidation Attracting & retaining new/specialized talent Cyber security & data loss Wholesale distribution value proposition Market diversification Market loss Comparative raters selling with emphasis on price v. service Pressure on commission / Contingent commissions Carriers preforming more agency tasks Carrier consolidation

36 AAMGA Emerging Issues & Trends Committee Technology Investments CAT Exposures Weather pattern changes CAT Bonds & Insurance Linked Securities Increased focus on risk management Solar storms & CME s Power grid blackouts Knowledge transfer / Lack of perpetuation plans Non-traditional insurers Google/Facebook & Amazon

37 Goals for 2015 Preservation of freedom of rate and form Enhance credibility and indispensability of E&S market Pragmatic and proportional regulations Consistency and uniformity of regulations Consistency and uniformity in interpretation and compliance of regulations Extend diversity initiative Strengthen ties with RMI programs Enhance underwriting / business acumen education Expanding Globally Responding Locally

38 Thank You 610 Freedom Business Center Suite 110 King of Prussia, PA (o) (fax)