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News: 2012 Press Release
For Release: December 2, 2012
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Commissioner Jones Disappointed In NAIC Vote To Proceed With PBR Without Addressing Resource, Capacity And Oversight Issues
SACRAMENTO - California Insurance Commissioner Dave Jones today opposed the National Association of Insurance Commissioners (NAIC) adoption of a system of Principle Based Reserving (PBR) that could dramatically change the method life insurance companies use to establish reserves and price certain products, without first addressing resource, capacity and oversight issues. After the vote, which narrowly exceeded the necessary threshold, Commissioner Jones expressed his disappointment with the vote.
"I am disappointed that the National Association of Insurance Commissioners decided to moved ahead with a dramatic change to the system we use to make sure life insurance companies have adequate reserves, without any fiscal analysis or adopting a complete plan to address capacity and oversight issues," said Commissioner Jones. "Principals Based Reserving is going to be costly for states and raise serious capacity and oversight issues, and will be costly for smaller life insurance companies, yet there was no fiscal analysis or capacity analysis provided to state commissioners before the vote today."
Presently, the insurance industry uses a reserving methodology that is formula based. Under PBR, each insurer will be able to develop reserves that recognize their individual risk characteristics, using complex statistical modeling, which will vary from company to company.
Because PBR is individualized, implementation by regulators will require significantly more resources and new expertise.
Commissioner Jones voted against the NAIC action because he believes:
- There was no Fiscal analysis showing the costs to individual states and the NAIC to implement PBR;
- Presently, there is lack of expertise among regulators to conduct verification of reserving models developed by insurers under PBR and no concrete plan was adopted to address the capacity issue, and,
- There is a lack of a governance system to ensure consistent application of review process among states, nor was a process adopted to ensure affectedstates have the ability to participate in the review and analysis of individual insurer reserving models.
The California Department of Insurance, established in 1868, is the largest consumer protection agency in California, regulating the $123 billion insurance marketplace. In 2012 the California Department of Insurance received more than 160,000 calls from consumers and helped recover over $64 million in claims and premiums. Please visit the Department of Insurance web site at www.insurance.ca.gov. Non-media inquiries should be directed to the Consumer Hotline at 800.927.HELP. Out-of-state callers, please dial 213.897.8921. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.
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