SB 402 Modifies provisions relating to insurer market conduct examinations, revises the process for approving certain policy forms, and incorporates several of the NAIC revisions to the Model Insurance Holding Company System Regulatory Act and Regulation
Sponsor: Rupp
LR Number: 1861S.01I Fiscal Note not available
Committee: Small Business, Insurance and Industry
Last Action: 3/13/2013 - Second Read and Referred S Small Business, Insurance and Industry Committee Journal Page: S520
Title: Calendar Position:
Effective Date: August 28, 2013

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Current Bill Summary


SB 402 - This act modifies provisions relating to insurer market conduct examinations, revises the process for approving certain policy forms, and incorporates several of the NAIC revisions to the Model Insurance Holding Company System Regulatory Act and Regulation.

MARKET CONDUCT EXAMINATION STANDARDS - Under the terms of this act, market conduct examinations shall only be conducted upon the issuance of warrants by the director or with written consent of the insurers or companies. The act establishes standards for issuing warrants for market conduct examinations in order to avoid arbitrary or capricious use of discretion. In order to issue a warrant for a market conduct examination, the chief market conduct examiner must state facts sufficient to support the director's belief that:

(1) The insurer may have engaged in a practice in violation of the insurance code and that the examination is reasonably calculated to provide information relevant to the inquiry;

(2) Significant changes have occurred in the insurer's market share during the last year for which the insurer is unable to provide a satisfactory explanation;

(3) Significant market changes threaten the availability or affordability of insurance coverage; or

(4) An examination is required to be performed by law.

The act sets forth standards for expanding the scope of the warrant. The warrant must be served on the insurer prior to the commencing the market conduct examination. The act further provides that insurers served with warrants may request a hearing before the director.

INVESTIGATION POWERS OF DIRECTOR - Sections 375.031 to 375.039 regulate the relationship between insurers and independent insurance producers. This act modifies the director's powers when investigating potential violations of such sections. The act provides that the director must make a determination within 60 days of receiving a complaint or initiating an investigation without complaint. The act also provides that the director must conduct an investigation to determine whether there has been a violation of such sections (Section 375.037).

POLICY APPROVAL - Under current law, no insurer shall deliver a policy of private passenger automobile insurance, homeowner's insurance, dwelling-owner's insurance, residential fire insurance, or tenant's or renter's insurance within Missouri until such policy form has been approved by the director. Under this act, the director must review the policy form within 45 days (current law is 60 days). If within that time frame, the director finds the policy does not comport with the insurance laws of the state or that the policy form contains ambiguous words or provisions, the director may file a petition with the Administrative Hearing Commission to have the policy disapproved. This act requires the director to notify the insurer of the specific provision in the policy that is contrary to state law and request the insurer to file an amendment form that modifies the provision to conform to state law. The failure of the director to take action on a submitted amendment within 45 days of the date of filing shall be deemed approval of the amendment. In addition, if a policy form is approved or deemed approved and is subsequently amended for state law compliance upon the director's request, the department shall not retroactively enforce the amended policy form.

The act further provides that if a policy form that contains a provision approved in a previous filing by such insurer is submitted to the director, such provision shall stand as approved. The department shall not disapprove, challenge, or otherwise request the insurer to change any such provision in a filing unless there has been a change to state law or a court decision rendered between the dates of such filings which makes the provision in the filing contrary to state law (Section 375.920).

The proposed legislation adopts similar approval provisions for group health policies (section 376.405).

HOLDING COMPANY LAW - This act modifies Missouri's Insurance Holding Company law (Chapter 382) by incorporating several of the National Association of Insurance Commissioners (NAIC) revisions to the Model Insurance Holding Company System Regulatory Act and Regulation. The NAIC revisions were made in response to the AIG bailout, to improve group supervision of insurers, including supervision of non-regulated subsidiaries and affiliates. These changes give insurance regulators such as the Department of Insurance, Financial Institutions and Professional Registration power to require filings and examine the non-insurance entities in a holding company to assess the possibility of solvencies that might lead to systemic risk. The NAIC revisions are designed to provide more detailed monitoring for system risk issues that might exist in non-insurance affiliates of an insurance company and could ultimately jeopardize the solvency of the insurance company. In short, adopting the revisions to the NAIC model act will give the Department of Insurance, Financial Institutions and Professional Registration access to enhanced information about the activities and risk profile of an insurance company's non-insurance affiliates.

There are several changes to Chapter 382 to incorporate the NAIC revisions, but the most significant changes include enterprise risk reporting. An enterprise risk means, generally, any activity, circumstance, event, or series of events involving an insurer's affiliate that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole (Section 382.010).

Under the terms of this act, the ultimate controlling person of every insurer subject to registration with total direct and assumed premiums of at least $500 million shall file a confidential annual enterprise risk report identifying material risks within the insurance holding company system that could pose enterprise risk to the insurer. The report must be filed with the lead state insurance commissioner of the insurance holding company system as determined by procedures within the Financial Analysis Handbook adopted by the National Association of Insurance Commissioners. The first enterprise risk report shall be due and filed no later than May 1, 2015, and annually thereafter, by the first day of May of each year, unless the lead state insurance commissioner extends the time for filing for good cause shown. This provision shall not apply to an insurer with total direct and assumed annual premiums of less than $500 million (Section 382.175).

Under the terms of the act, any controlling person of a domestic insurer seeking to divest its controlling interest in the domestic insurer shall file with the director confidential notice of its proposed divestiture at least 30 days prior to the cessation of control. The director must determine those instances in which the party or parties seeking to divest or to acquire a controlling interest in an insurer, will be required to file for and obtain approval of the transaction. The information shall remain confidential until the conclusion of the transaction unless the director, in the director's discretion, determines that confidential treatment will interfere with its enforcement of the law (Section 382.040).

Under current law, the director must approve any merger or other acquisition of control of a domestic insurer unless the director makes certain findings by the preponderance of the evidence. This act repeals the preponderance of the evidence standard. The act also provides that if the proposed acquisition of control will require the approval of more than one state insurance commissioner, the public hearing may be held on a consolidated basis. The act sets forth the standards for holding a consolidated hearing including the option for a state insurance commissioner to opt out of such a hearing (Section 382.060).

Under current law, insurers are required to file registration statements containing certain information. This act expands the type of information the registration statement must contain. The registration statement must contain financial statements of or within an insurance holding company system, including all affiliates, if requested by the director. Financial statements may include, but are not limited to, annual audited financial statements filed with the United States Securities and Exchange Commission. The registration statement must also contain current information about statements that the insurer's board of directors oversees corporate governance and internal controls and that the insurer's officers or senior management have approved, implemented, and continue to maintain and monitor corporate governance and internal control procedures (Section 382.110).

Under current law, any person may file with the director a disclaimer of affiliation with any authorized insurer. Currently, once a disclaimer has been filed, the insurer is relieved of any duty of registering or reporting under the holding company law unless the disclaimer is disallowed by the director. In other words, the burden of disallowing a disclaimer is placed upon the director. Based upon the revised model act, this proposed legislation modifies how disclaimers are approved. Disclaimers will no longer be automatically effective upon filing. Under this proposal, a disclaimer of affiliation shall be deemed to have been granted unless the director, within 30 days following receipt of a complete disclaimer, notifies the filing party the disclaimer is disallowed. In the event of disallowance, the disclaiming party may request an administrative hearing, which shall be granted. The disclaiming party shall be relieved of its duty to register under this section if approval of the disclaimer has been granted by the director, or if the disclaimer is deemed to have been approved (Section 382.170).

The act also establishes a provision authorizing the creation of and participation in "supervisory colleges," a confidential regulator- to-regulator forum for the discussion of financial issues involving international insurer groups. These supervisory colleges will include state, federal and international regulators supervising the group. Under the act, the director shall have the power to participate in a supervisory college for any domestic insurer that is part of an insurance holding company system with international operations in order to determine compliance by the insurer with Chapter 382. The powers of the director with respect to supervisory colleges include, but are not limited to, the following:

(1) Initiating the establishment of a supervisory college;

(2) Clarifying the membership and participation of other supervisors in the supervisory college;

(3) Clarifying the functions of the supervisory college and the role of other regulators, including the establishment of a group-wide supervisor or host, who may be the director;

(4) Coordinating the ongoing activities of the supervisory college, including planning meetings, supervisory activities, and processes for information sharing; and

(5) Establishing a crisis management plan.

Each registered insurer subject to the supervisory college provision shall be liable for and shall pay the reasonable expenses of the director's participation in a supervisory college.

Under the terms of the act, either the director nor any person who received documents, materials, or other information while acting under the authority of the director or with whom such documents, materials, or other information are shared under Chapter 382 shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or other information subject to confidentiality and privilege. Under certain circumstances, the director may share documents, materials, or other information, including confidential and privileged documents, materials, or other information with other state, federal, and international regulatory agencies, with the National Association of Insurance Commissioners and its affiliates and subsidiaries, and with state, federal, and international law enforcement authorities, including members of supervisory colleges, provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the document, material, or other information, and has verified in writing the legal authority to maintain confidentiality. In addition, the director may only share confidential and privileged documents, material, or other information with directors of states having statutes or regulations substantially similar to Missouri's and who have agreed in writing not to disclose such information.

The act sets forth numerous other standards regarding the treatment of documents, materials, and other information.

Under the act, the director is able to order an insurer to produce information not in its own possession, but obtainable by the insurer through contractual relationships, statutory obligations or other methods. In the event the insurer is unable to obtain the information requested by the director, the insurer shall provide the director a detailed explanation of the reason that the insurer is unable to obtain the information and the identity of the holder of the information.

Under the act, whenever it appears to the director that any person has committed a violation of certain provisions of Missouri's holding company chapter and the violation prevents the full understanding of the enterprise risk to the insurer by affiliates or by the insurance holding company system, the violation may serve as an independent basis for disapproving dividends or distributions and for placing the insurer under an order of suspension (Section 382.777).

STEPHEN WITTE