NAIC Attempt to be PBR Statistical Agent: A Bad Idea for Companies, Consumers, and Regulators
By: John R. Hurley
NAIC staff located in Kansas City performs many valuable functions for state insurance commissioners and indirectly for insurers and consumers. Recently, staff reported that it was planning to assume the role of Statistical Agent (SA) for the collection and analysis of experience data and reports related to the implementation and operation of the new system of life insurance reserving known as Principles-Based Reserving, or PBR. This work has not been directed by nor authorized by NAIC committees or its officers, based on public information. The submission of enormous amounts of life insurance experience data and analysis takes a tremendous amount of computer power, actuarial expertise, judgment and cost.
The current pilot program authorized by the states of New York and Kansas covers the data relative to over 80% of the companies subject to PBR. It is being conducted by the Medical Information Bureau (MIB), a private non-profit insurer membership organization dedicated to preventing fraud and performing statistical studies of life insurance values and behavior. MIB is a membership organization of 420 life insurance companies doing business in the United States and Canada. It has a sterling record of protecting the privacy of personal data submitted to it during the underwriting process, and a reputation among industry and regulators of providing accurate and reasoned analyses of the state of the life insurance business; allowing companies and other entities, including the regulatory community, to protect and enhance the ability of both industry and commissioners to protect consumers and improve the marketplace. NAIC commissioners and NAIC staff receive reports from MIB upon request, with identity and security protections, that help the commissioners make decisions on behalf of the citizens and consumers of their states and territories. MIB has the computer capability, the privacy protocols, the judgment and expertise, and the support of its member life insurers who voluntarily cooperate in its programs, to perform the SA tasks.
A few comments related to this issue:
• Privacy: The life insurance experience data currently collected by MIB is subject to stringent confidentiality controls. It is not certain that NAIC staff could meet that standard, or if it might use this data for unrelated regulatory action.
• Cost: The industry is already paying a significant cost, both internal and external, to comply with PBR. Adding to this cost will have an impact on premiums and reserves of life insurers without benefit to consumers.
• NAIC Management: This staff proposal appears to be self-driven, not authorized or sanctioned by the Life (A) Committee or the Executive (EX) Committee. A clear statement from NAIC leadership is necessary to bring this issue into focus.
• Industry Support: During the description of staff activity regarding the SA role, staff stated that industry was “on board” with their efforts. We have not confirmed that support after due diligence.
NAIC leadership should carefully consider the current situation, the potential drawbacks of a change in direction, the benefits of the SA as currently provided under its current contract, and the benefits of an independent, objective and secure organization that is supported by regulators and life insurers.
