Swaps, Credit Scoring on Tap for NCOIL Meeting

Despite movements on the federal level to rein in the use of credit default swaps, the issue will be a centerpiece of the July 9-12 meeting, officials said. A proposed NCOIL model law would identify such derivatives, the use of which has caught much of the blame for the near-collapse of American International Group Inc. (NYSE: AIG), as insurance products.

The Commodity Futures Modernization Act, passed by Congress and signed by President Bill Clinton nine years ago, pre-empted states regulating swaps under gaming and so-called "bucket shop" laws (BestWire, Feb. 4, 2009). But by identifying covered swaps, where the purchaser holds an interest in the underlying security and is acting to hedge exposure, as insurance products and banning the use of speculative "naked" swaps, the model asserts states' rights to action, NCOIL Executive Director Susan Nolan said.

"They're not going to sit around and wait. We don't know what's going to happen in Washington," she said.

NCOIL will also review how to best respond to efforts by the Obama administration and members of Congress to take a larger federal role in insurance regulation, Nolan said. NCOIL will continue to advocate for state-based solutions to insurance issues and strict limits on federal involvement, she said. The meeting will also include a roundtable discussion on systemic risk regulation.

The organization will take its first look at an amendment to its model law on credit-based insurance scoring. The model would require insurance companies using credit scoring to forgive customers for "extraordinary life circumstances," which include catastrophic events, serious illness, death of a spouse and divorce, among other circumstances (BestWire, June 16, 2009).

This change has the support of insurers, who hailed it as a good balance between helping consumers in need during a time of recession and protecting the interests of companies. "It's a rational way to approach the issue ... in a way that gives consumers a real option but doesn't turn everyday, normal life issues into an extraordinary life circumstance," said Neil Alldredge, vice president and state regulatory affairs manager for the National Association of Mutual Insurance Companies.

The meeting will also include several discussions on states and health care, including sessions on balance billing proposals and the effects of health care on budgets.

Property/casualty observers are also following potential model laws to establish criminal penalties for air bag fraud and to address steering issues with automobile body shop repairs.

NCOIL will also review, for the first time, a model law requiring employers to appropriately identify employees for workers' compensation benefit purposes (BestWire, June 29, 2009). The proposed Employee Misclassification Workers? Compensation Coverage Model Act would "promote transparency, disclosure, and accountability in the market and to establish clear criteria to distinguish independent contractors from employees," according to a NCOIL statement.

(By Sean P. Carr, Washington Correspondent: sean.carr@ambest.com)

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