DEPARTMENT OF THE TREASURY 

FEDERAL INSURANCE OFFICE (FIO) 

FEDERAL ADVISORY COMMITTEE ON INSURANCE (FACI) 

SUMMARY – 22 FEBRUARY 2018 

The Federal Advisory Committee on Insurance (FACI) convened at 1:00pm on 22 February 

2018 in the Cash Room at the US Department of the Treasury, 1500 Pennsylvania Ave., NW, 

Washington, DC, 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 

STEVEN SEITZ, Deputy Director, Federal Insurance Office 

AMY BACH, Executive Director, United Policyholders 

LAURA BISHOP, Executive Vice President and Chief Financial Officer, USAA (By proxy, Erin 

Martinko 

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

KURT BOCK, Chief Executive Officer, COUNTRY Financial 

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

ELIZABETH BROWN, Associate Professor, College of Business, 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 

JAMES (JIM) KELLEHER, Executive Vice President & Chief Legal Officer, Liberty Mutual 

Insurance 

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

Insurance Company (by proxy, Julie Herwig) 

ALFRED REDMER, Commissioner, Maryland Insurance Administration (by proxy, Nancy 

Grodin) 

MARGUERITE SALAZAR, Executive Director, Colorado Department of Regulatory Agencies 

MARIA VULLO, Superintendent, New York Department of Financial Services (by proxy, Scott 

Fischer) 

ALSO PRESENT: 

LINDSEY BALDWIN, Federal Insurance Office (delegated responsibilities of Designated 

Federal Officer) 

TERRY WILLIAMS, Federal Insurance Office 

WELCOME AND INTRODUCTION: 
FIO Deputy Director, Steven Seitz, welcomed committee members who were able to attend the 

first FACI meeting of 2018. He gave a brief history of the role of the FACI and its mandate to 

present advice and recommendations to the Federal Insurance Office. Mr. Seitz also reiterated 

the continued importance of the FACI, especially in its ability to facilitate discussions that 

increase the Federal Insurance Office’s understanding of certain issues. Mr. Seitz then turned the 

meeting over to Chairman Glaser. 

Chairman Glaser welcomed all of the committee members in attendance and encouraged all 

members to share their thoughts and perspectives on the issues that the committee plans to 

review. 

Discussion of the Long-Term Care Insurance Marketplace 

Chairman Glaser highlighted recent challenges facing the long-term care insurance market, 

including the exit of several major insurers and the significance of losses incurred by major 

carriers. Mr. Glaser also noted that the Federal Insurance Office and Treasury have stressed the 

importance of finding solutions to stabilize the long-term care insurance marketplace in both the 

FIO 2017 Annual Report to Congress and in the Report on Asset Management and Insurance in 

response to Executive Order 13772. Mr. Glaser then introduced Professor Marc Cohen of the 

University of Massachusetts, Boston. 

Mr. Cohen opened by thanking the committee for giving him an opportunity to present. Mr. 

Cohen then described the challenge of long-term care financing and opined that the challenge of 

long-term care will only grow in the years ahead. Mr. Cohen then noted that, given the nature of 

long-term care risk, that moving the long-term care system from a welfare based impoverishment 

model to an insurance-based approach will serve to achieve the best results. Mr. Cohen then 

detailed why the long-term care insurance market has underperformed and provided suggestions 

for how to create further growth in the private long-term care insurance marketplace. 

Mr. Cohen explained that 50% of people turning age 65 will experience a significant need, 

meaning that they are going to have at least two functional limitations or be cognitively impaired 

before they die, but that we do not know which of us is going to need long-term care. As such, 

the risk is perfect for risk pooling. Mr. Cohen explained that the current system – namely 

Medicaid – requires that those in need spend their income and assets before being able to access 

the program, which is a threat to retirement security. Mr. Cohen also noted that the out-of-pocket 

cost provided by families will exceed $2.5 trillion over the next 10 years. 

Mr. Cohen then discussed the long-term care insurance marketplace and the difference between 

stand-alone LTCI policies and combination products. Mr. Cohen noted that the characteristics of 

people who purchase LTCI as a stand-alone product, and that, typically they can be categorized 

as younger, wealthier individuals: People who are buying the products are now wealthier in 

terms of both assets and income. Mr. Cohen also noted the relative ease by which insureds can 

file claims and their positive experience with the claims management process. 

Mr. Cohen then discussed the current marketplace, and noted that there was a “perfect storm” of 

events that got us to where we are now. He explained that most policies are now administered by 
companies no longer in the LTCI market. When considering how to increase the role of private 

insurance, Mr. Cohen explained that there are only three methods: lower the cost of the product; 

change tastes to the product; and/or encourage insurers to come back to the market. 

Mr. Cohen thanked the committee. 

Chairman Glaser invited Charles “Chuck” Piacentini, Associate General Counsel, American 

Council of Life Insurers, to speak. 

Mr. Piacentini opened by discussing that the burden that families will face, will likely hit both 

state and federal welfare programs very significantly if there is not a role for other mechanisms, 

such as private insurance. Mr. Piacentini then detailed some of the National Association of 

Insurance Commissioners (NAIC) progress on long-term care insurance, including the creation 

of a joint task force to study the issue. 

Mr. Piacentini noted that the NAIC is focused on a number of product and financing innovations, 

with specific focus on hybrid products, the most popular of which are life insurance or annuity 

policies that provide an accelerated benefit rider that pay a significant sum to individuals to 

mitigate the cost of long-term care services. 

At the federal level, Mr. Piacentini noted that the NAIC brought forward a number of key 

financing options, including allowing retirement plan participants to utilize 401(k)s for premium 

and long-term care costs. Mr. Piacentini also reiterated Mr. Cohen’s point on familial impact. 

Mr. Piacentini stated that caretakers for disabled individuals may also need services and support. 

Mr. Piacentini thanked the committee again and turned the floor over to Chairman Glaser. 

Chairman Glaser opened the floor to questions from the committee. 

Amy Bach questioned the notion that rate increases had not been granted quickly enough. She 

also noted that she considered the biggest barrier to people purchasing LTCI is the fear that 

premiums are going to be too high to be affordable. Ms. Bach asked Mr. Cohen where 

standalone products would go and asked Mr. Piacentini whether ACLI supported non-forfeiture 

provisions. 

Mr. Cohen agreed that simple coverage is better than none and that, perhaps, some insureds were 

actually over-insured 

Mr. Piacentini explained, with respect to rate increases, that it was his opinion that many state 

regulators believed that their rate increase may subsidize the policies in other states, which was 

frustrating. He also noted that non-forfeiture benefits are included in terms of most states’ model 

acts, which provides protection. 

Kurt Bock explained that persistency of COUNTRY LTCI policies remains at 99% after a rate 

increase, which means that their policyholders are more apt to keep and retain their current 

benefit levels. Mr. Bock asked Mr. Cohen whether he has customer research to back the 
statements on rate increases (as opposed to claimant information, which is a much narrower 

subset). 

Mr. Cohen explained that older people with LTCI who go back into the LTCI marketplace will 

experience higher premiums, and are concerned about whether they would pass underwriting. 

Mr. Cohen also explained that, while it does not make logical sense, there are behavioral issues 

associated with sunk costs. 

George Keiser asked Mr. Cohen how many states have signed the Partnership Agreement and 

whether a long-term care policy was portable in light of the Partnership Act. 

Mr. Cohen explained that a major benefit of the Partnership Agreement was that, for purposes of 

eligibility for Medicaid, a certain percentage of assets, would be shielded and that you would be 

permitted to retain those assets, which would induce people to consider insurance. Mr. Cohen 

suggested that over 30 states have Partnership policies. 

Marguerite Salazar asked whether the presenters have data on what the costs of long-term care 

actually are versus where they should be. 

Mr. Cohen explained that there is good cost information on long-term care and that a number of 

carriers do surveys on this. He explained that carriers have, in the past, tried to negotiated 

preferred provider rates, but that he does not know how active that approached is today. 

Mr. Piacentini pointed out that a significant portion of LTCI benefits are paid on an indemnity 

basis, which would benefit the policyholder directly, not the provider. 

John Franchini explained that there are some bad actors that sold LTCI that regulators are now 

having to deal with. He explained that he would like to see a way to allow companies to sell their 

policies into a reinsurance market, and in return, they would pay into the market all of the money 

collected. 

Mr. Cohen explained that a reinsurer can be considered the same as an insurer in these instances 

and that they would be unlikely to find these policies attractive. 

Mr. Piacentini explained that care should be taken to ensure that a pool of bad business is not 

created. 

James Kelleher asked whether LTCI was viable in the United States 

Mr. Cohen explained that one commonality across all jurisdictions with LTCI markets is that 

there is a wraparound to some social insurance program. He explained that there are higher take 

up rates in other countries because consumers know exactly what they will get from the 

government. 

Mr. Piacentini added that there are differences in familial structures in other countries and that 

the U.S. is more mobile. 
Discussion of Cybersecurity Risks to Insurers 

Chairman Glaser introduced Mr. Ronald Bushar, vice president of global government services 

for FireEye to discuss cyber risks that the insurance industry could face. 

Mr. Bushar introduced his colleague, Chris Porter, the Chief Intelligence Strategist for FireEye 

and thanked everyone for the invitation. Mr. Bushar explained that systemic cyber risk in the 

insurance and reinsurance market is a new and emerging area that is challenging because of the 

lack of history to study. He explained that, traditionally, attacks have been met with new 

defenses that creates a constant game of escalation. He explained that the financial services 

industry falls into an umbrella that nation-state actors target for their information. Mr. Bushar 

explained that the solution to defending critical infrastructure is unlikely to be solved with 

software and hardware, but rather will be solved by policy and governance. 

Mr. Bushar explained that meeting minimum thresholds, such as the NYDFS Cyber Regulations, 

is not sufficient, and does not focus on how to operate systems in a more resilient manner. Mr. 

Bushar rhetorically asked how to translate risk into a management model or a model that can be 

communicated at a senior level in organizations to think through in a more holistic manner. In 

cyberspace, response cycles need to be swift and have to be tightly integrated with business 

operations so that down times are minimized. 

Mr. Bushar noted that third party vendors must be considered for purposes of resilience as well 

because of their contributions to most enterprises. Understanding exposures and risks, especially 

as data and assets are transferred among service providers, is a critical risk area that needs to be 

well-understood. 

Mr. Bushar recommended to the committee that they begin by starting at a high-level planning, 

including the use of drills. Today, most companies are no longer able to hold close a breach. This 

is due to a few factors: first, the media attention and focus in this area has increased significantly; 

second actors themselves have increased incentives to publicize what has occurred, either from a 

political or an information operations perspective, or from an extortion perspective. 

Organization need to apply their own business models and their own unique elements of risk to 

the plans to make sure that resilience policies – perhaps based on the NIST framework – address 

their unique needs. Notifications, communication planning, how to deal with the media, how do 

you think about mitigation to both victims, customers, and employees, are all “underlooked.” 

Mr. Bushar explained that companies need to prioritize certain assets, what he calls the “crown 

jewels” of an organization, including key data assets, key information technology assets, key 

individuals that must be protected rigidly. From there, companies need to build resiliency in. Mr. 

Bushar explained that organizations often struggle to figure out the appropriate balance between 

securing the “crown jewels” and the remainder of the organization. 
Mr. Bushar noted that FireEye often finds that its clients either abandon or fail to maintain 

security controls that FireEye recommends because they are painful. Humans are incentivized to 

bypass security controls because they are annoying and they get in the way. 

Mr. Bushar opined that FireEye believes that destructive attacks this year will come in the form 

of both CryptoLocker, Ransomware, and destruction of data and systems to cover tracks after a 

cyberattack, all of which will become more common. 

Mr. Bushar noted that attribution is becoming increasingly important, because of the importance 

in understanding the bad actor being dealt with. Responses will be tailored depending on whether 

an attack is coming from a nation state, criminal group, terrorist, etc. 

As a recommendation, Mr. Bushar suggested that all stakeholders need to do a better job of 

sharing information, knowledge, threats, vulnerabilities, etc. Mr. Bushar followed this by saying 

that he predicts that a cyber attack may eventually lead to significant damage to health and safety 

or, potentially, a loss of life. 

Mr. Porter asked the rhetorical question of why an attacker would conduct a cyber attack. To 

provide perspective he explained that money centers are the most targeted, which are attacked 

after months of preparation by a sophisticated actor or organized crime group. Insurance, is the 

third most targeted group of the financial services sector. One reason for this may be to cause 

systemic risk to the entire U.S. economy. Why would a nation-state go after an insurer? Why 

would a criminal organization go after an in surer? For criminal groups, it is because insurers 

hold a lot of sensitive data that can be used for follow-on crime. For nation-states, the reason 

may be to get information on who customers are, or they utilize the trustworthiness that insurers 

have to gain access to other information that is more exploitable: hacking an insurer may be a 

side-door to get access to what a hacker really wants. 

Kurt Bock asked whether it would be true that the largest companies are the most targeted and 

that the smallest companies are the most vulnerable and, if so, what smaller companies can do. 

Mr. Bushar responsed that he was not sure that there was a direct correlation to size, but that 

depending on the actor, oftentimes they are looking for an easy advantage, which is to say that 

they are looking for an easy way to gain access. So, if a smaller organization gives them entry, 

they will use it to get to whatever their ultimate target is. 

Mr. Porter added that, on the PII side, bad actors do not care about who holds the data, but rather 

the data itself. For instance, bad actors care less about the insurer and more about who they are 

insuring. 

Mr. Bushar added that a sad but true fact is that the organizations too small to afford the cost of 

cybersecurity protections are more exposed and that as a collective we need to think about how 

to help. 

Steven Seitz asked how cybersecurity companies balance the need to maintain large companies 

as clients versus the need to understand the needs of and assist smaller insurers. 
Mr. Bushar responded that a shared model, perhaps supported through a government-sponsored 

agency, might be a model for smaller insurers. He gave the concept that HHS is attempting to 

start to play in the health insurance sector by supporting small and regional healthcare systems 

and markets by providing access to more of the information at no cost. 

Amy Bach explained that cybersecurity insurers are providing some information at no cost to 

policyholders to mitigate the potential for breaches and to increase resilience. 

Julie Herwig asked if the presenters had a sense of a breakdown between the P&C, L&H as 

targets. 

Mr. Bushar explained that they did not, but that more state actors are interested in the finance 

sector than health care. 

Scott Fischer asked about the potential of systemic risk and the potential to have correlation that 

companies are not even aware of. 

Mr. Bushar explained that it is difficult for insurers to underwrite some risk because of the 

potential for systemic risk. 

Discussion of the National Flood Insurance Program, National Mitigation Investment 

Strategy, and Resilience 

Chairman Glaser opened discussion by noting that the NFIP provides a vital service to the people 

and places that have been hit by a natural disaster and that no part of the country is truly immune 

from flood damage. He noted that a longer term NFIP extension is important because it would 

allow the program reforms being considered by Congress to be implemented efficiently and 

effectively. 

Chairman Glaser then introduced Tyler Corson-Rickert of FEMA. 

Mr. Corson-Rickert began by talking about the NFIP, noting that Congress created the program 

in the 1960s because of the tremendous challenge that flooding poses to the U.S. Floods are the 

nation’s most common and costly natural disaster, and, on average cost America approximately 

$8.2 billion. Mr. Corson-Rickert explained that the NFIP is more than just a federal insurance 

program: NFIP is also a program to identify flood risk across the nation and to work with 

communities and households to reduce flood risk through the flood plain management 

requirements and mitigation assistance. After detailing some of the work of the NFIP, Mr. 

Corson-Rickert concluded that the NFIP rose to the occasion to handle the recent natural 

disasters and that FEMA would continue to carefully integrate lessons learned from each flood 

event. 

Mr. Corson-Rickert highlighted FEMA’s commitment to developing a culture of preparedness in 

closing insurance gaps across the nation and reminded everyone of the importance of purchasing 
flood insurance. He noted that there is a 26% chance that a home in a special flood hazard area 

will experience a flood over the course of a 30-year mortgage. He explained that the average 

premium for an NFIP policy is just $700, but that the average claim payment is $43,000. He 

noted that FEMA is working to transform the NFIP into a provider that the policyholders and 

communities value and trust. 

Mr. Corson-Rickert explained that one of Congress’ and FEMA’s biggest challenges with the 

NFIP is creating a sound financial framework for the program. He also noted that NFIP has over 

5 million policies in force, nearly two-thirds of the U.S. population use credible flood risk data 

products, over 1,400 communities participate in the FEMA community rating system to better 

manage their risk, and that FEMA has avoided an estimated $46 billion in losses through 

mitigation investments in the life of the program. 

Mr. Corson-Rickert then shifted the discussion to the National Mitigation Investment Strategy. 

Mr. Corson-Rickert noted that last year’s declared disasters create a significant opportunity to 

increase mitigation efforts using federal dollars. Specifically, up to 20% of amounts spent in 

recovery efforts in presidentially declared disasters can be allocated to mitigation projects. 

However, FEMA also needs its partners to communicate the value of investing in mitigation to 

ensure the long-term health and sustainability across the country. 

Mr. Corson-Rickert discussed a study by the National Institute of Building Sciences that shows 

that for every $1 invested in mitigation, $6 are saved and losses avoided. He explained that 

FIMA is leading development of the NMIS with a working group including members of the 

Federal Insurance Office. The NMIS is about closing the nation’s hazard mitigation and 

insurance gap. Goals of the NMIS are to to increase the effectiveness of existing federal housing 

mitigation programs to incentivize greater state, local, and private sector contributions to long 

term risk reduction and provide guidance that governments and private sector entities can use to 

consider in making resource allocation decisions. The strategy is intended to deliver actions that 

will lead to the following national outcomes: improved coordination, innovative financing, 

shared accountability, access to data, risk informed communication, and a resilient built 

environment. 

Mr. Corson-Rickert yielded back to Chairman Glaser 

Chairman Glaser introduced Amy Bach, FACI Member and Executive Director of United 

Policyholders. 

Ms. Bach discussed the importance of the NFIP and noted that UP is a steadfast supporter of 

NFIP, but also very focused on helping move the needle to get more people to buy flood 

insurance. 

Ms. Bach explained that the reality is that unless a lender, an agent or broker, or a financial 

advisor who requires or recommends buying flood insurance, most people fail to buy it. This is 

why we only have 5 million of the 117 million households in this country that have an NFIP 

policy, and then the private insurers share is in the .00 percent of homes that are insured through 

private flood policies. 
Ms. Bach explained that there is innovation on the flood front: there are a limited number of 

hybrid products on the market; there have been a number of private carriers that include a flood 

endorsement for, typically, higher end customers; and there is increased interest from reinsurers; 

there is a multi-state consortium looking at ways to create a multi-state or national all perils 

product. 

Ms. Bach noted that, regarding mitigation, NFIP/FEMA should not be forced to bear the entire 

burden, and that private insurers should have a role in facilitating mitigation of flood damage. By 

that, policyholders should be told what they can do in helping to contribute to the research and 

publicity around making their homes less damaged in the event of a flood. 

Ms. Bach noted that many states have stepped up to assist with flood mitigation, specifically 

New Jersey after Superstorm Sandy. Ms. Bach then yielded the floor to Chairman Glaser. 

George Keiser asked Mr. Corson-Rickert if there was discussion in FNIP regarding the 

grandfathered status of some properties. 

Mr. Corson-Rickert responded by providing an overview of the grandfathered status of 

properties during remapping, which was addressed in part by Congress in the Biggert Waters 

Flood Insurance Reform Act. Mr. Corson-Rickert explained that FEMA is continuing the 

practice and explained that the primary factor is work on risk rating redesign, which is a 

fundamental look at how FEMA maps flood risk, and how to turn that into insurance ratings and 

the premiums that policyholders pay. Generally, FEMA is hoping to move away from the current 

maps that are based on paper and whether you are in or out of the flood plain. 

John Franchini asked whether FEMA’s reinsurers made a profit on the $1billion of flood risk 

coverage that they provided FEMA for $150 million in coverage. 

Mr. Corson-Rickert explained that they worked with 25 different reinsurers who paid out in full 

and that, although he was unaware of how this played out on their balance sheets, that there was 

an appetite to insure the risk again in 2018. 

Mr. Franchini then asked if the NFIP could go into a DIC program, instead of just flood. 

Mr. Corson-Rickert responded that, as the administrator talks about the national insurance gap, 

he is talking about a range of kinds of insurance coverage that could help Americans, but that 

there are specific parameters around which NFIP can operate. Mr. Corson-Rickert noted that 

FEMA would certainly welcome any discussion of additional catastrophes/risks in Congress 

about how the NFIP can evolve. 

James Kelleher asked whether Mr. Corson-Rickert had a view on the NFIP requirement that 

NFIP servicers are precluded from engaging in the private market. 

Mr. Corson-Rickert explained that, as he understands it, the non-compete clause relates only to a 

specific entity of an insurer that services WYO products, not other entities within the 
organization, such that a subsidiary of the insurer may be able to sell competing products. Mr. 

Corson-Rickert also noted that independent agents are welcome to sell whatever product that 

they want to sell. 

Kurt Bock asked Ms. Bach how the industry can respond to the problem of underinsurance. 

Ms. Bach responded that competition may help provide more attractive options and that agents 

need to recommend flood insurance when appropriate. 

New Business and Closing Remarks 

Chairman Glaser turned the floor over to Steven Seitz to provide a brief update. 

Mr. Seitz highlighted the FIO’s work on the U.S./EU Insurance Project, big data, and discussed 

FIO/Treasury efforts to be more open and transparent with colleagues at the state level, in 

Congress, and with all stakeholders. 

Chairman Glaser motioned to approve the minutes from the August 17, 2017 and December 6, 

2017 meetings. Member Keiser seconded the motion. 

At 4:22 pm, Chairman Glaser concluded the meeting.