Insurance Groups: NAIC Big Data Panel Proposed Charges Are Too Broad
October 18, 2016 by Thomas Harman
WASHINGTON – Insurance industry groups labeled as too broad a National Association of Insurance Commissioners’ panel proposal for the panel to consider additional oversight of big data use by insurers, including having the NAIC become involved in reviewing data models used in underwriting, rating and claims.
The NAIC’s big data working group has been exploring the use of big data for claims, marketing, underwriting and pricing, as well as its potential for use in improving market regulation. Charges for the group to follow during 2017 are to be sent to the Market Regulation and Consumer Affairs Committee to consider during the NAIC Fall National Meeting in Miami this December (Best’s News Service, Aug. 26, 2016).
The working group proposed three recommendations for its 2017 work, including having the panel recommend improvements to the regulatory framework regarding use of consumer and non-insurance data. At a minimum, the panel should consider changes to model laws and regulations, data vendor and broker regulations, regulatory reporting requirements and consumer disclosure requirements.
It also recommended the panel propose a process for regulatory review of complex data models used in underwriting, rating and claims, with the NAIC having a means to share resources and conduct coordinated reviews of those models.
The panel should also establish data needs and required tools for regulators to monitor the marketplace and to evaluate underwriting, rating, claims and marketing practices.
But the Property Casualty Insurers Association of America and the National Association of Mutual Insurance Companies were critical of the proposals. In a letter sent by Dave Snyder, PCI vice president, international policy, to panel chairwoman Laura Cali, Oregon’s insurance commissioner, Snyder said the proposed charges were unnecessary. “There is no documented need for dramatic change,” he wrote.
He said the proposed charges at best “could create unnecessary and unproductive uncertainty about what are the rules and at worst could impair competition and the ability of insurers to respond to evolving challenges.”
Snyder said the first charge “is so overly broad as to sweep in every element of regulation and even potentially abandon the fundamental anchor of cost-based pricing, thereby repudiating decades of successful regulation and the recent recommendations of the NAIC in its work on price optimization.”
The second charge calls for “the actual creation of a new, large, costly bureaucracy at the NAIC” that would replace efficient and effective statistical agents and potentially increase consumer costs, Snyder wrote. The third charge is — like the first — too broad, Snyder said. “We have heard no justification for such a broad and sweeping overhaul of our successful regulatory system and insurance market,” he wrote.
Instead, the working group should focus on skyrocketing underlying costs, including the dramatic increase in crashes, deaths and injuries on the nation’s highways. U.S. Department of Transportation officials recently reported motor vehicle crash fatalities jumped 10.4% during the first half of 2016 compared with the same period in 2015. In 2015, the DOT reported the largest such percentage increase since the 1960s, Snyder said.
The National Association of Mutual Insurance Companies also voiced its disapproval. Neil Alldredge, NAMIC senior vice president, state and policy affairs, told Best’s News Service the charges beg for a definition of big data and need to be narrowed. He said state insurance departments already get filings and review them and have the tools to evaluate rate filings. “There’s no doubt that as the practice [of using big data] grows and evolves over time, there may be a new regulatory framework that needs to be established, but we’d like to see regulators take a harder look at what they already have,” Alldredge said.
He objected to having the NAIC become involved in rate review and called it a troubling concept. “It’s hard to contemplate that that would be the best answer for regulators,” he said.
(By Thomas Harman, Washington Bureau manager, BestWeek: Tom.Harman@ambest.com)
