Insurance Regulator Newsletter
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State of Arizona Volume 1, Issue 1 Jane Dee Hull Governor Charles R. Cohen Insurance Regulator Director Arizona Department of Insurance Fourth Quarter 2000 Vol. 2, Issue 2 FROM THE DIRECTOR. 2000 was characterized by a his or her state, and the ability that the state-based regulatory remarkable debate concerning of each state insurance de- system must be modernized the future of state-based in- to deal effectively, efficiently surance regulation. Even and fairly with a continuously among those professing a de- evolving, dynamic, national, sire to preserve state-based even global, insurance indus- regulation, ideas and propos- try. Can this modernization als are widely divergent. As be accomplished without sac- with any debate, it is impor- rificing the essential qualities tant to define the key terms. of state-based regulation? I believe the essence of The answer will be revealed “state-based” insurance regu- through our exhaustive efforts lation is the power of each to do so. state insurance commissioner Modernization must take the to make the ultimate insur- partment to render local serv- form of aggressive develop- ance regulatory decisions af- ice to local constituents. ment of uniform regulatory fecting the public interest in There is general agreement (Continued on Page 2) ADOI Receives State Regulation 2000 Award By Erin Klug include the Uniform Certifi- states. cate of Authority Application In 1999, Arizona began re- At the NAIC Winter meeting process (UCAA), Examination porting market conduct ex- in December, the ADOI be- Tracking System (ETS), and amination activity on ETS as came one of 23 state insur- the System for Electronic well as financial exams, allow- ance departments to have re- Rate and Form Filing ing other states more immedi- ceived the NAIC’s State (SERFF). ate access to our examination Regulation 2000 Award. The Arizona began accepting the planning information. award is given to insurance UCAA on July 1, 2000, allow- We anticipate being ready departments that implement ing foreign insurers to file to receive the first SERFF fil- all 11 State Regulation 2000 copies of the same core ings by summer 2001, thereby initiatives. application for admission in reducing the time and cost The goal of the program is Arizona as in other UCAA involved in making certain life to achieve greater efficiency and/or P&C product filings. and effectiveness through Director Cohen is a strong technology, increasing uni- What’s Inside advocate of using technology formity and consistency ATA Works with ADOI ........3 and uniformity to increase ef- across state boundaries and Continuing Education .......4 ficiency and unify processing enhancing interface between Fraud Report ......................5 of multi-state regulatory trans- the industry and regulators. Around ADOI ......................6 actions. Some of the key initiatives Regulatory Report .........7-15 (Photo on Page 3) Mission “To faithfully execute state insurance laws in a manner that protects insurance Statement consumers and encourages robust competition and economic development.” From the Director… Risk-Based Capital Takes Effect for (Continued from Page 1) Managed Care Organizations standards and processes, greater reciprocity, and maxi- By Steve Ferguson mum use of technology to Risk-based capital stan- · Underwriting Risk, which unify individual state process- dards for health organizations measures the risk of un- ing of multi-state regulatory take effect for statements of derestimating liabilities transactions. financial condition “as of” from business already Modernization should also dates after Dec. 31, 2000, written or inadequately include use of the NAIC as a pursuant to Senate Bill 1070. pricing business to be mechanism to support state- The new standards follow written in the coming year. based regulation, as a forum the formula established for the development of uni- through the National Associa- · Credit Risk, which meas- form standards and proc- tion of Insurance Commis- ures the risk of recovering esses, centralized databases, sioners. Affected health or- receivable amounts from and standard applications to ganizations include hospital creditors. facilitate coordinated multi- service corporations; medical state regulatory transactions, service corporations; dental · Business Risk, which and as an enabler for the use service corporations or op- measures the risk of gen- of technology by individual tometric service corporations; eral business. state insurance departments. hospital, medical, dental and If even a highly efficient and optometric service corpora- A company’s risk-based technological state-based tions; prepaid dental plan or- capital is calculated by apply- regulatory system is ultimately ganizations and health care ing factors to various asset, too limited to effectively and services organizations. premium and reserve items. fairly regulate the modern in- RBC replaces a static The factor is higher for those surance industry, it will have $1 million net worth require- items with greater underlying to be supplemented with ment. It is a method of risk and lower for less risky sound elements of national measuring the minimum items. The adequacy of a regulation enacted in appro- amount of capital appropriate company’s actual capital can priate forums through appro- for a health organization to then be measured by com- priate processes. If that even- support its overall business parison to its risk-based capi- tuality comes to pass, state operations considering its size tal as determined by the for- regulators must be active, and risk profile. It provides an mula. While RBC results will positive participants in those elastic means of setting the be included in health organi- processes. Our vigorous ef- capital requirement based pri- zations’ public financial state- forts now to perfect and marily on the degree of risk ments, the law does provide strengthen the state-based taken by the health organiza- substantial confidentiality for system will help assure that, tion. The five major catego- the underlying analysis. in any event, it will continue to ries of risks measured are: Risk-based capital stan- constitute the core of insurance regulation in this · , dards will be used by the Asset Risk – Affiliates country. which measures the risk ADOI to set in motion appro- of assets’ default for cer- priate regulatory actions relat- tain affiliated investments. ing to health organizations that show indications of weak Insurance Regulator, or deteriorating conditions. · Asset Risk – Other, ADOI’s quarterly The ADOI has been actively which measurers the risk publication, is monitoring and prompting of assets’ default of princi- available on our web site: health organizations in their pal and interest or fluctua- attainment of compliance with www.state.az.us/id tion in market value of the new standards by Jan. 1 unaffiliated investments. Arizona Department of Insurance Fourth Quarter 2000 Page 2 ATA Notifies ADOI Legislative Report If Insurers Fail to Pay Assessment ADOI Prepares for 2001 Session By Gerrie Marks With the approval of the Governor’s Office, the ADOI has pre- The Arizona Automobile pared eight bills for consideration by the Arizona Legislature, Theft Authority was estab- which convened its first regular session of 2001 on Jan. 8. lished in 1997 to determine Three of the bills are related to Gramm Leach Bliley, including the scope of motor vehicle the Uniform Producer Licensing Act, which is designed to main- theft in the state and to tain Arizona‘s autonomous authority to make licensing and disci- analyze various methods of plinary decisions concerning insurance producers doing business combating the problem. in the state. In the absence of uniform or reciprocal producer li- The primary source of the censing by the states, GLB would establish a national producer ATA’s funding is from the as- licensing authority, the National Association of Registered Agents sessment of fees authorized and Brokers (NARAB). by A.R.S. §41-3451(J). Each The other bills deal with HMO insolvency administration, the insurer writing motor vehicle repeal of certain obsolete insurance laws and laws governing liability insurance in Arizona is prior approval of HMO solicitations, increases in fee limits, and required to pay a semiannual peace officer status for Fraud Unit investigators. fee on or before Jan. 31 and ADOI bills are expected to be referred to the Senate Banking July 31 of each year. and Insurance Committee, chaired by Sen. Ed Cirillo, a Republi- The ATA will notify the can from Sun City West and a retired IBM executive, and the ADOI of an insurer’s failure to House Financial Institutions and Insurance Committee, chaired pay the prescribed fee. Upon by Rep. Ted Carpenter, a Republican from Phoenix and a retired receipt of this notice, the Phoenix firefighter. The Senate committee will meet Thursday ADOI Director has the author- afternoons and the House panel meets on Wednesday mornings. ity to suspend the insurer’s Other members of the Senate committee are: Sen. Andy Nichols, vice certificate of authority or im- chair, Democrat, Tucson; Sen. Sue Gerard, Republican, Phoenix; Sen. pose a civil penalty , or both. Dean Martin, Republican, Phoenix; Sen. Elaine Richardson, Democrat, Tucson; and Sen. Ramon Valadez, Democrat, Tucson. The ADOI worked with the Other members of the House Committee are: Rep. Edward Poelstra, ATA to establish a process for vice chair, Republican, Tucson; Rep. Steve May, Republican, Phoenix; handling these referrals that Rep. Marian McClure, Republican, Tucson; Rep. Bob Robson, Republi- will be implemented with the can, Chandler; Rep. Roberta Voss, Republican, Glendale; Rep. Carlos next ATA fee payment dead- Avelar, Democrat, Phoenix; Rep. Bill Brotherton, Democrat, Phoenix; line of Jan. 31, 2001. The Di- Rep. Gabrielle Giffords, Democrat, Tucson; and Rep. Jim Sedillo, rector is prepared to exercise Democrat, Flagstaff. the authority granted to him For further information about ADOI’s bills, see the Third Quarter 2000 under the statute and, where issue of Insurance Regulator, which is posted on the ADOI Internet web appropriate, impose appropri- site at www.state.az.us/id. ate penalties.