Iowa Insurance Commissioner: US System Deserves Mutual Recognition From European Regulators
August 24, 2015 by Thomas Harman, Washington Bureau manager, BestWeek: Tom.Harman@ambest.com
CHICAGO – Iowa Insurance Commissioner Nick Gerhart said the U.S. state-based insurance system deserves mutual recognition from European regulators attempting to create new international regulations.
Gerhart spoke with Best’s News Service at the National Association of Insurance Commissioner’s Summer National Meeting.
The following is an edited transcript of the interview.
Q: You’re a member of the International Insurance Relations Committee at NAIC. The discussion in recent months has been pretty much dominated by capital standards and the International Association of Insurance Supervisors’ efforts to create an international regulatory scheme. What’s your impression of this?
A: I’ve been involved with the insurance capital standard debate and other debates now for over a year. I was part of an EU/U.S. dialogue in Frankfort, where Sen. [Ben] Nelson and I were the two representatives for the U.S. and we spent the better part of a day educating our European counterparts on how our market works and the capital standards, and why some of the things that they’re working on at the IAIS with the capital standards — and why Solvency II in particular — wouldn’t work in the United States.
My position was, folks in a bank-centric approach where no company can ever fail doesn’t make a lot of sense. We have a robust market here. Companies do fail, as we know in Iowa recently. So companies do fail and we have a guaranty association to step in to protect consumers. We have incredible rights as regulators to take over a company to try and rehabilitate it or, if we also have to, liquidate it. But we have a lot of protections for the consumer.
I do think we’re actually having some very productive dialogue centering on Team USA, our counterparts at the Federal Reserve and the FIO office. I think we’re starting to interact and talk about coming up with an approach that works for our U.S. system. I think that from looking across the pond in Europe, I think it’s pretty clear that our system deserves mutual recognition. I think that’s pretty clear, in my opinion at least.
But I would submit every company should care about this matter. It could impact everybody if we don’t get it right. Industry has been very engaged as you know probably from being in some of these meetings this past weekend here. Small companies, large companies — not just the international companies — really should care.
From our perspective, getting it wrong will bleed down into other carriers down the road. I very strongly believe we have to work to get the right system for a capital standard for our carriers here, not only in Iowa, but across the country, and I’m optimistic we can get there.
Q: You chair the variable annuities working group. What challenges does that group face right now?
A: We had our first real meeting not too long ago. We did not meet here in Chicago, because my goal is to really get the technical people in the room so we can have a robust dialogue of the technical issues. From my perspective, we want the carriers to use prudent risk management tools. … We have to have better disclosure. We have to have more transparency. And then we have to really see what’s driving this. How do we eliminate the need for it? Is it rule changes? … How do we treat hedges? What is the real issue that’s driving it? And what I’ve found so far is that it depends on who you talk to. There’s several things that are driving it — product design. Are they hedging interest rate risk? Are they hedging economics? So there’s a lot of issues that the carriers have individually.
Q: Much was written about the liquidation of CoOportunity Health. Has there been another COOP to replace it? Has there been any interest? What was the impact of losing that company?
A: Out of the [Affordable Care Act], 23 COOPs were created. We had, at the time it was created, the only one that was in two states, Iowa and Nebraska. Ours was the first to fail. … What is the market impact? We were able to transition people right away. So, it was a very unusual situation. Normally when a commissioner takes over a company, he or she is going to say “Hey, don’t do a run on the company. Everything’s going to be fine. We’re going to rehabilitate it; we’re going to take these steps. [Nebraska Insurance] Director [Bruce] Ramge and I took a little different approach where on the day we took it over. If you were to read the articles on Christmas Eve day … we really told people ‘Get out’ that day. We wanted people to get out because of the open enrollment period under the ACA and we really weren’t sure who was going to have special enrollment periods and when those were going to be. So, we told folks to get out. We moved out of almost 120,000 people, 80,000 to 90,000 probably in the first six to eight weeks. As I’m sitting here now, we have 368 that are still in it that will be looking for a home finally here at the end of this month, because they have to move at the end of this month.
Our biggest challenge was that we only had one carrier left in the exchange last year, which was Coventry Health of Iowa. They took on all the individuals. And now this year, we had two other carriers file for exchange, so we’ll have three statewide carriers in our market. It looks like it’s actually going to be much more robust than it was before. I don’t think that failure scared off other carriers from coming into the market. And I think most of the people that had coverage found alternative coverage.
