This letter is McDermott’s response to the NAIC Innovation Team’s request for information to support making permanent various regulatory accommodations related to innovation and technology during the pandemic.
We are writing in response to the request for information from the Innovation and Technology (EX) Task Force and the Innovation and Technology State Contacts (the “NAIC Innovation Team”) to support making permanent various “regulatory relief” and “regulatory accommodations” related to innovation and technology granted during the pandemic. We believe making these measures permanent will benefit consumers and strengthen the competitive marketplace.
By way of background, our firm represents a large and diverse client base in the industry that includes traditional and emerging/start-up re/insurers, agents, brokers, MGAs, TPAs, program administrators, investors, and other stakeholders. Our practice spans all lines of business.
You may recall our correspondence and meeting in Kansas City in 2019 around these issues with you and your team and representatives from several InsurTech firms. Thank you for the opportunity to offer these comments and for your continuing engagement with the industry on these important matters.
First, we appreciate the work of the NAIC and state insurance regulators to date in modernizing various legal requirements to facilitate innovation, such as in the rebating-related amendments to the Unfair Trade Practices Model Act. The focus and commitment needed to complete that work during the pandemic is not lost on us or our clients.
Second, we support the comments submitted by the Wholesale & Specialty Insurance Association, and likely comments that we have not yet reviewed from other industry trade associations supporting such regulatory modernization efforts.
Below is a high-level summary of the regulatory relief and accommodations we believe should be made permanent, in no particular order.
Wet signatures, paper notices, and notarization. Many of these requirements would seem to have little benefit to consumers, provided the same verification and other substantive standards can be satisfied through other means. For example, it seems that regular mail, especially uncertified mail, may not be any more reliable than electronic mail; in our view, receipt of electronic mail would appear much easier to verify than paper mail. Notarization, if/when required to protect consumers and insurer solvency, should be able to be performed virtually. These requirements create extra compliance costs and can be especially burdensome to smaller regulated firms including start-ups. Consumers and the market as a whole would benefit greatly from modernization of these requirements in a uniform and consistent manner across the states that recognizes many consumers wish to transact electronically. Consumers that prefer paper such as payment by check should still be able to do so, but such individual needs should not prevent innovation efforts that benefit the broader industry and consumer base.
Regulatory paper filings. Many a tree has suffered unnecessarily at the hands of state insurance regulatory filings, particularly requirements to file multiple copies of the yellow and blue books. We understand states, while having access to such filings electronically, do not wish to incur the cost to print financial statements and other materials when regulators wish to review away from the computer, in which we would suggest modernizing (i.e., increasing) filing fees to account for such cost. We respectfully suggest regulators accept as compliant any filing that can be made electronically by any regulated entity, for efficiency, public health and many other reasons.
New products. Certain states have facilitated an expedited review process for new products. For example, one state expedited its review of a new no-cost guaranteed issue three-year term life insurance policy for front-line health workers. Consumers around the country would also benefit from the expedited review and approval of many other products currently being developed or awaiting regulatory approval, for example, life products incorporating health and wellness factors into underwriting and rating. Short of an expedited review/approval process, or in the meantime during such process, consumers interested in new products would also benefit from any combination of rate and form filing exemptions, file and use, and expansion of automatic surplus lines export, as applicable.
Expedited filings. Expanding on Item 3 above, and further to our discussions in 2019, we respectfully request the NAIC Team consider the merits of a pre-filing (virtual) meeting, possibly with the participation of one or more insurance departments, to discuss new/novel products. The regulated entity would be able to provide greater transparency around the proposed new product, while receiving more transparency into the filing process and a potentially definitive (e.g., 30 day) timeline for resolution of a complete filing. Such pre-filing meetings could be facilitated through the members of the NAIC Team, using the SERFF platform to flag filings that go through this process. In the meantime, and in addition, companies may also wish to work with individual states, e.g., those that might have an interest in expediting approval of a particular product due to local need or specific innovation initiative.
In-person/physical presence. States have waived requirements that would necessitate inperson presence as well as encouraged insurers to use remote options for functions such as adjusting or inspecting claims. In instances where a personal physical presence or office location is not necessary to protect consumers and the regulatory process, it seems appropriate to repeal all such requirements to avoid unnecessary gatherings and the cost of time and travel. These include physical office requirements (e.g., where a copy of a producer’s license must be displayed prominently for the hypothetical consumer who will never visit the office in person), in-person continuing education and licensing/proctored examinations, as well as in-person audits of MGAs and TPAs, though there will of course be instances where in-person audits and other meetings are warranted. A permanent repeal would avoid the need to issue new Orders/Notices re-instituting such accommodations in any next wave of COVID-19 or the next novel virus or other emergency such as natural catastrophes. In addition, many start-up producers would benefit from express regulatory permission to maintain a purely digital presence, as appropriate, including from outside the U.S. where a good amount of new investment in the industry originates. None of these measures would seem to us to impede regulators’ ability to regulate these entities.
Real-time insurance transactions. Various states have indicated during the pandemic that certain activities will not be deemed unfair trade practices/methods of competition or otherwise in violation of existing state laws such as those governing policy cancellation and nonrenewal. These include (i) mid-term retroactive refunds and other premium adjustments; (ii) temporary termination of coverage; (iii) virtual and self-audits of premium; (iv) limited extensions of coverage in lieu of non-renewal or cancellation; and (v) mid-term coverage extensions (e.g., food delivery for commercial or charitable purposes). Beyond the pandemic, there are many uses for such accommodations, including on-demand, or episodic, insurance and products serving the gig economy. The availability of such real-time insurance products is especially important for small businesses, temporary workers, and the construction industry as the economy builds back. Such accommodations should also extend to real-time, live declinations by admitted insurers for purposes of state surplus lines diligent search requirements, which some states have sought to apply on a risk by risk basis for products widely known to be unavailable from admitted insurers.
We believe the above accommodations are reasonable and intuitive. The past eight months have essentially served as a pilot program, or “sandbox”, in which these accommodations were tested in many states in one form or another, with no discernible effect on solvency regulation or consumer protection. We would of course appreciate any opportunity to discuss our comments and for other opportunities to collaborate with the NAIC Innovation Team. Thank you again for your consideration.