In the aftermath of the passage of the Gramm-Leach-Bliley Act of 1999 ("GLBA"), the National Association of Insurance Commissioners ("NAIC") commissioned a number of working groups and task forces to respond to specific mandates that GLBA imposes on state insurance regulators, as well as to respond to pressures which regulators believe may ultimately result in a Federal insurance regulatory structure. Kentucky Insurance Commissioner George Nichols, President of the NAIC, set the NAIC on an aggressive course at the beginning of his term and sought preliminary action from each of the working groups by the end of this year. With the approach of year’s end in sight, the NAIC, at its Fall National Meeting in Dallas (September 9–13, 2000), took a number of important steps towards Commissioner Nichols’ goal.

As always, Michael W. Teichman from Reed Smith’s Wilmington, Delaware office attended the National Meeting. Additionally, Mr. Teichman, along with M. Paige Berry, from Reed Smith’s Princeton, New Jersey office and Christine Mullen, from Reed Smith’s Philadelphia, Pennsylvania office, hosted a reception on Saturday, September 5. This reception was attended by senior regulators from at least five states as well as representatives from trade associations, insurance companies and insurance regulatory consultants. Look for other Reed Smith receptions to be held at future national meetings.

The privacy issues working group took its final steps during the Fall National Meeting to adopt a draft Model Privacy of Consumer Financial and Health Information Regulation. Subsequent to the meeting, on September 26, 2000, the NAIC, in plenary, adopted the Model. Because of the GLBA mandate that states enforce GLBA’s privacy provisions with respect to insurance entities, as well as the Model’s looming effective date of July 1, 2001, many states are expected to act quickly in adopting this Model.

In most respects, the NAIC Privacy Model tracks parallel privacy regulations adopted by the Federal banking agencies and Federal Trade Commission. Pursuant to Title V of GLBA, these regulations require financial institutions to provide certain notices to customers and consumers, and require that each be given an opportunity to "opt-out" of certain information sharing with non-affiliated third parties. The NAIC Privacy Model, however, expands the privacy requirements that will be applicable to insurers and producers regulated by states that adopt the Model. These added restrictions include:

• Imposing privacy requirements with respect to claimants under commercial insurance policies, notwithstanding that GLBA’s privacy provisions apply only to products or services for "personal, family or household use."
• Imposing an "opt in" for insurers handling health information, notwithstanding that health information is not mentioned in GLBA and will be regulated by rules to be adopted by HHS.
• Imposing "nondiscrimination" requirements that may violate Title V’s exception concerning underwriting.

National Treatment of Companies

This working group is charged with developing criteria whereby certain insurance companies would undergo regulation of various aspects of their business primarily through a national treatment task force rather than through the regulatory processes of each individual state insurance regulator. Such national treatment would encompass company licensing, corporate issues, acquisitions, financial reporting, insolvency, and so forth. The national treatment task force is envisioned to be made up of a team of state insurance regulators from at least 10 states, and would operate under the auspices of the NAIC.

At the Fall National Meeting, the working group announced a four-step process to move the concept of national treatment forward:

1. Obtain commitments from all states to participate in the Accelerated License Evaluation Review Techniques ("ALERT") program by December of this year. The primary focus of the ALERT program has been implementation of the Uniform Certificate of Authority Application designed to allow insurers to file copies of the same application for admission in numerous states.
2. Adoption of a common review process for the regulatory procedures subject to the supervision of the national treatment task force.
3. Implement a national treatment process on a voluntary basis through memoranda of understanding; at this step, a plan for implementation between the summer of 2001 and the summer of 2002, the national treatment task force would act in an advisory capacity only.
4. Adoption of a legal framework to empower the national treatment task force and thereby effectuate a national treatment system by June of 2003.

Speed to Market Working Group

This working group was established to develop and implement methods for streamlining the cumbersome multistate rate and form review process. Prior to the Fall National Meeting, this working group proposed the creation of a Coordinated Advertising, Rate, and Form Review Authority ("CARFRA"). Still in the conceptual stage, CARFRA would be open to insurance regulators from each of the 50 states as well as the District of Columbia and American Territories. These members would elect a board of directors and make available staff to perform rate and form reviews. If implemented, CARFRA would provide a single point of contact and uniform standards for rate and form filings.

At the Fall National Meeting, the Speed to Market Working Group created a subgroup to focus on the specifics of the CARFRA proposal with the goal of having a finalized proposal to submit to the whole of the NAIC in December. A separate subgroup was also created to focus on the parallel goal of improving the existing state-based system.

Consumer Protections Working Group

Earlier this year, the Office of the Comptroller of the Currency ("OCC") issued two Notices of Request for Preemption (OCC Docket No. 00-12 and 00-15, respectively). These two Notices represent application of the preemption provisions of § 104 of GLBA, specifically involving preemption over state regulation of sale, soliciting and cross-marketing activity pursuant to § 104(d)(2)(B). The Consumer Protections Working Group issued commentary to the OCC in response to these Notices, arguing that the West Virginia and Massachusetts laws in question did not violate the standards of § 104.

At the Meeting, the Consumer Protections Working Group discussed the NAIC’s position with respect to preemption of the West Virginia and Massachusetts laws and, in particular, noted that another Notice was likely to issue with respect to consumer protection laws in Rhode Island. Indeed, since the National Meeting the Financial Institutions in Insurance Association has called upon the OCC to renew a notice issued with respect to these Rhode Island laws in 1996.

This working group also addressed the very recently proposed Federal consumer protection rules issued jointly by the OCC, the Office of Thrift Supervision, the Federal Reserve System and the Federal Deposit Insurance Corporation. Prior to the issuance of these proposed rules, NAIC representatives met with federal regulators to discuss their thoughts on these draft rules, then under development. The working group will be submitting written comments in response to these proposed rules and intends to meet further with federal regulators to discuss NAIC concerns.

Subtitle C of Title III of GLBA calls for the creation of a National Association of Registered Agents and Brokers ("NARAB")to assume responsibility for producer licensing in the event the individual states are not able to attain a certain level of uniformity or reciprocity by November 2002.

The inclusion of the NARAB concept within GLBA accelerated the NAIC’s progress on the Producer Licensing Model Act, causing this Model to be adopted by the NAIC in January of this year. Notwithstanding the fact that the Producer Licensing Model has been adopted, controversy remains over certain of its provisions.

Recognizing the importance of the Producer Licensing Model in attaining a uniform system of state producer licensing, and thereby forestalling the creation of NARAB, the NARAB working group, at the National Meeting, set about trying to resolve disputes over § 4(b)8 of the Model. This controversial section would permit insurers’ customer service representatives to service existing insurance policies without being licensed as an insurance producer, provided they were not directly compensated based on the volume of premiums resulting from such services and providing they otherwise didn’t sell, solicit or negotiate insurance. Insurance agents strongly oppose this "loophole" and had threatened to block adoption of the Producer Licensing Model in individual state legislatures if the provision were to remain.

At the Fall Meeting, the NARAB Working Group attempted to address these issues but made little progress. On September 15, 2000, the working group caved in to pressure from the agents and voted to remove the provision altogether. Notwithstanding an outcry from insurance trade associations supporting § 4(b)8, in early October the NAIC adopted the proposal to remove § 4(b)8.