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DEPARTMENT OF THE TREASURY 

FEDERAL ADVISORY COMMITTEE ON INSURANCE (FACI) 

SUMMARY - JANUARY 5, 2017 

The Federal Advisory Committee on Insurance (FACI) convened at 1:00 p.m. on January 5, 2017 in the 

Cash Room at the U.S. Department of the Treasury, 1500 Pennsylvania Avenue, N.W., Washington, 

D.C. with Daniel Glaser, Chair, presiding. 

In accordance with the provision of the Federal Advisory Committee Act, the meeting was open to the 

public. 

Committee Members Present: 

DANIEL GLASER, President and Chief Executive Officer, Marsh & McLennan Companies, Inc., Chair 

AMY BACH, Executive Director, United Policyholders 

DAVID (BIRNY) BIRNBAUM, Executive Director, Center for Economic Justice 

LAURA BISHOP, Executive Vice President and Chief Financial Officer, USAA 

KURT BOCK, Chief Executive Officer, Country Financial 

QUINCY BRANCH, President and Chief Executive Officer, Branch Benefits Consultants 

ELIZABETH BROWN, Professor, University of Wisconsin - La Crosse 

JOHN FRANCHINI, Superintendent, New Mexico Office of the Superintendent of Insurance 

MARK GRIER, Vice Chairman, Prudential Financial, Inc. 

GEORGE KEISER, Representative, North Dakota House of Representatives 

THEODORE MATHAS, Chairman, President, and Chief Executive Officer, New York Life Insurance 

Company (by Proxy, Julie Herwig) 

AL REDMER, Commissioner, (by Proxy, Catherine E. Grason) 

MARGUERITE SALAZAR, Commissioner 

MARIA VULLO, Commissioner 

Committee Members Not Attending: 

JAMES KELLEHER, Executive Vice President & Chief Legal Officer, Liberty Mutual Insurance 

TERESA MILLER, Commissioner, Commonwealth of Pennsylvania Department of Insurance 

THEODORE (TED) NICKEL, Commissioner, Wisconsin Office of the Commissioner of Insurance 

MICHAEL RILEY, Commissioner, State of West Virginia Offices of the Insurance Commissioner 

CHRISTOPHER SWIFT, Chairman and Chief Executive Officer, The Hartford 

KATHERINE (KATIE) WADE, Commissioner, State of Connecticut Insurance Department 

Also Present: 

MICHAEL McRAITH, Director, Federal Insurance Officer, U.S. Department of the Treasury 

CHESTER McPHERSON, Designated Federal Officer, U.S. Department of the Treasury 

DANIEL McCARTY, Federal Insurance Officer, U.S. Department of the Treasury 

A. THOMAS FINNELL JR., Deputy Director, Federal Insurance Office, U.S. Department of the 

Treasury 
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Welcome Introduction and New Members 

Director McRaith welcomed the members of the FACI and turned the meeting over to the FACI Chairman 

Daniel Glaser who officially convened the meeting. 

Chairman Glaser welcomed the FACI Members and spoke of the changes for the upcoming year. He then 

acknowledged the Committee members who were reappointed for another three-year term: Superintendent 

John Franchini, Representative George Keiser, and Mr. Mark Grier. Chairman Glaser also noted that he too 

was reappointed for another three-year term. He then thanked the reappointed members for their continued 

service and congratulated them on their reappointment. 

Mr. Glaser welcomed two new members to the Committee: Mr. Christopher Swift, Chairman and CEO of 

the Hartford, who, unfortunately, was unable to attend; and Mr. Quincy Branch, President and CEO, Branch 

Benefits Consultants. 

Chairman Glaser concluded his welcoming remarks by recognizing the service of those members whose 

terms on the Committee recently ended: 

 Commissioner Nicholas Gerhart of Iowa resigned in December 2016 as his state’s insurance 

commissioner; 

 Commissioner Julie McPeak of Tennessee recently assumed the role of President-Elect of the 

NAIC and because of her new responsibilities will not be able to continue as a member of the 

Committee;

 Professor Brenda Cude from the University of Georgia, who served as a consumer advocate 

representative; and

 Loretta Fuller, CEO of Insurance Solutions Associates, who served as an industry representative. 

Chairman Glaser emphasized that, “this Committee helps FIO to fulfill its important role. It is work that 

would not be as meaningful without the contribution of all of our members.” He thanked all members for 

their contribution. 

Discussion of the Emerging Cost in Auto Insurance 

Chairman Glaser introduced the topic and called on Mr. Peter Drogan, Vice President and Chief Actuary at 

Amica Mutual Insurance Company. Mr. Drogan focused his presentation on the increase in frequency and 

severity of auto insurance losses, and explored a range of contributing factors as certain drivers impact the 

cost of automobile insurance premiums. He noted that although most of his presentation was based on data 

related to personal auto, the trends can also be applied to commercial auto. 

Mr. Drogan observed that there are several continuing forces placing upward pressure on costs and 

premiums; he classified them into three main categories and offered his views on each, namely: the 

economy, society, and technology. The economy – Mr. Drogan said that more employment opportunities 

and low gas prices will continue to increase the number of miles driven, although he observed that 

increasing employment is a more important causal factor to the miles driven than gas prices. Mr. Drogan 

identified some societal factors that are also cost drivers, such as: speeding – the repeal of the national 

maximum speed limit may be a contributing force to increasing auto fatalities and injuries; increasing use of 

marijuana and drug use – Colorado has reported increases in traffic deaths involving marijuana, while 

California has reported that drivers killed in car crashes who test positive for drugs increased by nearly 40 
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percent from 2009 to 2013; and distracted walking – another major growing problem that has contributed to 

more accidents. On the technology front, Mr. Drogan noted that although cameras and sensor equipment 

are largely present only in higher end cars, manufacturers are moving quickly to incorporate new, costly 

technology into their entire fleet. New technology means more cost. Repair costs are increasing as a result 

of more of vehicles on the road that are equipped with the new technology. Mr. Drogan said that the 

increasing costs of repairing cars are a national trend, not a state specific trend. Mr. Drogan concluded that 

policymakers should continue to work on increasing preventive measures to curve these adverse trends by 

enacting new laws and enforcing the distracted and impaired driving laws, adopting responsible speed 

limits, and continuing to educate and increase public awareness of these issues. Mr. Bock, Ms. Bach, and 

Mr. Birnbaum asked questions of Mr. Drogan. 

Discussion of Blockchain Technology in the Insurance Sector 

Chairman Glaser introduced and welcomed Mr. Matt Higginson, Associate Partner at McKinsey & 

Company, who shared his views on an emerging technology called “Blockchain.” Mr. Higginson described 

Blockchain technology as a cryptographic or encoded distributed ledger that is comprised of a digital log of 

transactions that can be shared across either a public or a private network. He noted that because 

Blockchain uses a more secure cryptographic key system than anywhere else in the financial services, it 

lends a degree of security not seen before. Mr. Higginson shared that in order for the industry to 

successfully deploy Blockchain, it must first undertake digitizing data from paper records to digital records, 

which he acknowledged will be a major undertaking. He explained that the successful application of the 

Blockchain related technology requires a distributive ecosystem, and, therefore, is not a solution that can be 

pioneered by individual insurance companies working on their own. He said that Blockchain requires a 

degree of cooperation, which is a major challenge for the financial services industry because it does not 

have a good history of collaborating constructively. Mr. Higginson said insurance companies, regulators, 

technology companies, and ultimately the government will need to cooperate in order to make Blockchain 

successful. 

Mr. Higginson noted that over the last two years more than $1 billion has been invested on Blockchain 

related technology. Mr. Higginson stated that approximately half of the industry is actively participating in 

experiments with Blockchain, while the other half is in a wait see mode; and, acknowledged that it will take 

upwards of five years for Blockchain to become applicable on a commercial scale and be a reality across the 

industry. 

Mr. Higginson concluded that commercial grade Blockchain technology solutions will not be developed in a 

hurry; and, instead, the industry will take time to understand the technology, to build prototypes, and 

eventually to find a way of working together for the benefit of the whole industry. In doing so, it will 

gradually overcome some of these big hurdles and resolve some of the existing regulatory challenges. 

Mr. Glacier, Ms. Bach, Superintendent Franchini, and Mr. Bock asked questions of Mr. Higginson. 

Discussion of an Overview of Insurance Fraud 

Chairman Glaser introduced and welcomed Mr. Alan Haskins, Director, Government Affairs, National 

Insurance Crime Bureau (NICB). Mr. Haskins provided a brief overview of the NICB, a nonprofit 

organization with 1,100 property and casualty insurance member companies and that has been in business 

for approximately 104 years. Mr. Haskins explained that NICB’s mission is to be the preeminent 

organization fighting insurance fraud and vehicle crime by working with insurers, law enforcement 
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agencies, and representatives of the public and private sectors. Mr. Haskins noted that investigations are the 

core of the work performed by NICB, done in conjunction with prosecutors and attorney generals’ offices 

around the country. 

Mr. Haskins said that by law, NICB member companies have to report suspected insurance fraud to the 

departments of insurance all around the country, and the data included in those reports are used to focus 

NICB’s investigative resources on insurance fraud issues such as medical, commercial fraud, and autorelated crimes. He said these cases tend to be concentrated in the larger states: California, Florida, New 

York, and Texas. Mr. Haskins also shared about NICB significant legislative work on such issues as 

strengthening states’ anti-fraud laws; and working with states to adopt anti-solicitation laws to prevent thirdparties from soliciting victims of insured losses. 

Mr. Haskins concluded by providing an overview on the costs of insurance fraud; he conceded that there are 

no definitive sources that track the actual cost of insurance fraud, and any estimation is, at best, a guess. He 

pointed to references that the FBI estimates there is annually $40 billion of non-healthcare fraud, and $250 

billion for healthcare related fraud. 

Mr. Birnbaum, Superintendent Franchini, and Commissioner Salazar asked questions of Mr. Haskins. 

Discussion of an the Opportunities and Challenges to Insurance Regulation and Consumer Protection 

from Insurers’ Use of Big Data 

Chairman Glaser introduced and welcomed Mr. David (Birny) Birnbaum, Executive Director, Center for 

Economic Justice. Mr. Birnbaum shared that “Big Data” poses an existential challenge to the state-based 

system of insurance regulation. He defined Big Data as “massive databases of information about millions of 

individual consumers, associated data mining and predictive analytics applied to those data, and scoring 

models produced from these analytics.” Mr. Birnbaum identified a number of changes in the market place 

as a result of insurers’ using Big Data, such as using it in insurance pricing, marketing, and managing claims 

settlements. Mr. Birnbaum said that Big Data has the huge potential to benefit consumers and insurers by 

transforming the insurer-consumer relationship. He indicated that Big Data could be used to discover new 

insights into loss mitigation, but at the same time, it also has significant implications for fairness and 

affordability of insurance, and for regulators’ ability to keep up with the changes and protect consumers 

from unfair practices. 

Mr. Birnbaum shared that the current insurance regulatory framework in most states does not provide 

regulators with the tools to effectively respond to insurers’ use of Big Data. He said that regulatory reform 

that emphasizes regulators collecting, analyzing, and publishing consumer market outcomes will yield more 

efficient and effective regulation for consumers, insurers and producers; and, further, will promote more 

competitive markets that will foster quicker adoption of innovative technologies that benefit consumers and 

fulfill public policy goals. Mr. Birnbaum suggested that in order to identify insurers’ use of data, it is 

necessary to monitor market outcomes, and this can be done by creating a resource for the states for Big 

Data analytics and develop a 21st century approach to the oversight of risk classifications, including 

oversight of modelers acting as advisory organizations. 

Ms. Bach and Mr. Bock asked questions of Mr. Birnbaum. 
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Discussion of the IAIS Proposed Insurance Capital Standard 

Chairman Glaser introduced and welcomed Mr. A. Thomas Finnell Jr., Deputy Director, Regulatory Policy, 

FIO. Mr. Finnell provided an update on the development of the proposed insurance capital standard (ICS) 

of the International Association of Insurance Supervisors (IAIS). He reported that the ICS work is in the 

fourth year of annual field testing, and that the 2016 field test – the most recent – involved analyzing data 

from approximately 40 firms including some U.S.-based firms. Mr. Finnell shared that a number of issues 

related to the ICS work stream have been discussed and tested, including: (i) a market-adjusted basis of 

valuation (MAV); (ii) a “GAAP with adjustments” basis of valuation, also called “GAAP Plus”; (iii) the 

qualifying amount and classification as Tier 1 or 2 capital of various capital resources such as retained 

earnings, common stock, and various financial instruments such as senior debt and surplus notes; and (v) the 

issue of non-paid-in capital. 

Mr. Finnell also shared that the International Accounting Standards Board and the Financial Accounting 

Standards Board here in the United States are expected to make changes to their respective accounting 

standards pertaining to accounting for insurance contracts. 

Mr. Finnell concluded his remarks with a reminder that the current ICS work plan contemplates adoption by 

late 2019. He also noted that the ICS, if adopted, is not self-executing, and would have to be implemented 

by the appropriate authorities in individual jurisdictions. 

Director McRaith Announced His Resignation 

In addition to the presentations made at the meeting, Director McRaith announced that he would be 

resigning as the FIO Director after five and a half years in the position. He thanked the FACI members for 

their service, with special acknowledgement of Chairman Glaser for his work and persistent attendance, 

leadership, and friendship. In his remarks, Director McRaith also thanked the FIO staff for their service, 

and also Secretaries Geithner and Lew for their leadership during his tenure. 

New Business 

Prior to the Committee adjourning, Chairman Glaser raised the item of new business and discussed with 

members whether to meet in February as was planned or to meet instead on May 11. The members agreed to 

May 11 for the next meeting. 

Chairman Glazer thanked the presenters and members of the Committee for attending the meeting, and extended 

a special thank you to Director McRaith. 

At 4:30 p.m., Chairman Glaser concluded the meeting.