DEPARTMENT OF THE TREASURY

FEDERAL INSURANCE OFFICE (FIO)

FEDERAL ADVISORY COMMITTEE ON INSURANCE (FACI)

MINUTES – September 29, 2020 

The Federal Advisory Committee on Insurance (FACI) convened at 12:30 pm on 29 September 

2020 via teleconference, with Dan Glaser, Chair, presiding.

In accordance with the Federal Advisory Committee Act, the meeting was open to the public.

Committee Members Present

DAN GLASER, Marsh & McLennan (Chair)

ERIC ANDERSEN, Aon

AMY BACH, United Policyholders 

BIRNY BIRNBAUM, Center for Economic Justice

QUINCY BRANCH, Branch Benefits Consultants

GREG CRABB, Amerisure

BETH DWYER, Rhode Island Insurance Division 

ROB FALZON, Prudential

DOUG HELLER, Consumer Federation of America

PETER KOCHENBURGER, UConn School of Law

GEORGE KEISER, North Dakota House of Representatives 

JAMES KELLEHER, Liberty Mutual

SEAN McGOVERN, AXA XL

VICKI SCHMIDT, Kansas Insurance Department

ANDREW STOLFI, Oregon Division of Financial Regulation 

MARK THRESHER, Nationwide

BETSY WARD, MassMutual

BILL WHEELER, Athene 

Also Present

ROBERT HARTWIG, Clinical Associate Professor and 

Director, Risk and Uncertainty Management 

Center, University of South Carolina 

LLOYD DIXON, Senior Economist, Director, RAND 

Kenneth R. Feinberg Center for Catastrophic 

Risk Management and Compensation 
L. CHARLES LANDGRAF, Arnold & Porter

Department of Treasury Staff Present

STEVEN SEITZ, Director, Federal Insurance Office (FIO)

LINDSEY BALDWIN, Senior Insurance Regulatory Policy Analyst, FIO (Designated Federal 

Officer) 

Welcome and Opening Remarks

Ms. Baldwin performed a roll call to confirm attendance on the call.

Chairman Glaser announced that Jillian Froment and Kent Sullivan have departed their positions 

and that their FACI terms had ended. Chairman Glaser also announced two new committee 

members, Commissioner Vicki Schmidt from the Kansas Insurance Department and 

Superintendent Beth Dwyer from the Rhode Island Insurance Division. Ms. Schmidt and Ms. 

Dwyer have both joined the Availability subcommittee. 

Chairman Glaser reported that FACI received two public comments prior to the meeting. Jason 

Schupp of the Center for Better Insurance submitted a comment regarding pandemic insurance 

programs. Chubb submitted their pandemic business interruption proposal and supporting 

program summary.

All interested members of the public are invited to submit comments to FACI, which will be 

distributed to the committee members prior to the next public meeting. All public comments are 

available to members of the public upon request, as outlined in the meeting’s Federal Register 

Notice. The process for submitting public comments is also outlined in each Federal Register 

Notice.

Chairman Glaser outlined the meeting’s agenda. FIO Director Steven Seitz would provide an 

update, followed by an update from the COVID-19 Subcommittee’s workstreams. At this time, 

the committee would also hear presentations providing perspectives on the role of insurance in 

addressing pandemics. The committee would then take a short break followed by updates from 

the Protection Gap Subcommittee and the International Subcommittee. The meeting would end 

with a discussion led by the Availability Subcommittee relating to its work on long-term care 

insurance and disparate impact.

Update on Federal Insurance Office Activities

Director Seitz reviewed FIO’s continued work in connection with the COVID-19 pandemic. He 

reported that FIO is fulfilling its statutory mandate to monitor the insurance sector and is closely 

tracking how COVID-19 is affecting U.S. insurance markets and stakeholders. FIO has been 
engaging with stakeholders and monitoring the various proposals to address losses attributable to 

the current and future pandemics.

Director Seitz reported that FIO continues to coordinate data collection with the NAIC and the 

states regarding business interruption losses. He emphasized that access to a complete set of 

data, particularly as related to business interruption losses, is critical in understanding the impact 

of COVID-19 on the insurance sector and FIO’s monitoring of the sector. He added that FIO is 

continuing to work with the NAIC and the states, and the office is in the process of evaluating 

the data.

Director Seitz reported that FIO is preparing an October 2020 Joint Committee meeting under 

the U.S.-EU Covered Agreement in October. The joint committee provides a forum for 

consultation and information exchange on the administration of the Covered Agreement. The 

Joint Committee last met in April 2019 in Washington D.C. The October 2020 meeting will be 

held virtually.

Director Seitz reported that FIO is closely monitoring how developments in the United Kingdom 

may affect the entry and support of the U.S.-U.K. Covered Agreement. He added that working 

with the United Kingdom on the new U.S.-UK Insurance Project is a priority for FIO.

Director Seitz also reported that FIO continues to track the progress of the NAIC and the states 

regarding the implementation of laws for credit for reinsurance, the group capital calculation,

and the adoption of the Model Holding Company Act.

Director Seitz reported that FIO is also continuing to represent the United States at the 

International Association of Insurance Supervisors, and has been actively engaged in the IAIS’s 

work monitoring the COVID-19 pandemic. FIO is also working with Team USA on the 

insurance capital standard and the work on comparability, including the aggregation method 

being developed by the United States 

Director Seitz announced that FIO’s annual report would be published on September 30, 2020.

The report contains information and analysis on the financial, operational, coverage, and 

regulatory implications of the COVID-19 pandemic in the insurance sector. The report also 

contains sections on domestic and international regulatory developments, and an analysis of the 

insurance industry’s financial performance for 2019.

Director Seitz reported that FIO published its 2020 report on the Effectiveness of the Terrorism 

Risk Insurance Program (TRIP) in June 2020. The report reflected findings of a stable market 

for terrorism risk insurance coverage in the United States, with terrorism risk insurance coverage 

obtained by roughly 70 percent of policyholders at a cost of 1-2 percent of total policy 

premiums. The report also discussed the market for cyber terrorism insurance based on 

significant stakeholder outreach conducted earlier in the year.
Director Seitz reported that FIO is analyzing recommendations from the Advisory Committee on 

Risk-Sharing Mechanisms (ACRSM). FIO has begun performing market research related 

terrorism risk modeling, threat assessment, and mitigation, and will potentially undergo contract 

initiatives on these topics.

Director Seitz reported that, on August 11, 2020, Treasury released a report by the Federal 

Interagency Task Force on Long-Term Insurance. The report includes recommendations to 

improve the regulation of long-term care insurance in the United States, and notes that 

implementation of the recommendation would remove barriers to innovation and increase 

regulatory efficiency and alignment. This could make long-term care insurance more affordable 

and accessible while allowing the market to continue shaping evolution of the product line. 

Director Seitz summarized the contents of the report. Subject areas included innovation and 

product development, regulatory efficiency and alignment, financial literacy and education, and 

tax incentives. He also summarized the report’s recommendations to FIO: that FIO should

coordinate analysis on the impact of combination products for LTCI risk protection; and FIO 

should continue to monitor and report on the development of a consistent national approach by 

the NAIC to regulatory review on LTCI rate increase proposals and requests. 

Subcommittee COVID-19 Discussion

Chairman Glaser summarized the COVID-19 Subcommittee’s workstreams and outlined the 

planned agenda for this portion of the meeting. 

Workstream 1 (“Protection”) is charged with assisting FIO in analyzing the various pandemic 

proposals submitted by the industry and assisting FIO in addressing congressional inquiries

about the role of insurance as a prospective pandemic solution. 

Prior to the meeting, the committee’s members received a pandemic proposal comparison chart 

along with supporting materials for the speaker presentations.1 Chairman Glaser reminded the 

committee that the proposals are works in progress, and that the COVID-19 Subcommittee 

should play a role in galvanizing the industry around a set of principles that can guide in the 

development of a pandemic solution that assists all policyholders.

Workstream 2 (“Preparedness”) is charged with analyzing the lessons learned from the current 

pandemic and making recommendations on how to streamline processes and procedures for 

future events. Chairman Glaser stated that to be responsive for future pandemics, a partnership

must be formed between insurance and risk management that facilitates coverage and aligns the 

needs of insurance buyers and insurers to avoid losses while incentivizing pandemic risk 

preparedness and mitigation. He added that because pandemic risk is complex, strong national 

1 All documents are available at https://home.treasury.gov/policy-issues/financial-markets-financial-institutionsand-fiscal-service/federal-insurance-office/federal-advisory-committee-on-insurance-faci. 
pandemic management is needed. Recent history has provided examples of how this can be 

accomplished, through a range of risk-pooling models from pure private partnerships to statefinanced funds for non-insurable risks.

Chairman Glaser announced that the committee would hear presentations from three industry 

experts providing their perspective on the role of insurance in developing a pandemic solution.

Each speaker was provided with 25 minutes to speak, including Q&A.

Mr. Crabb introduced the first presenter, Dr. Bob Hartwig. Dr. Hartwig is the Director of the 

Risk and Uncertainty Management Center at the Darla Moore School of Business at the 

University of South Carolina. Dr. Hartwig was previously the president and chief economist at 

the Insurance Information Institute, where he educated insurance stakeholders on key issues. He 

has testified before Congress, state legislatures and regulatory bodies. and has written and 

published numerous research papers, including a recent paper on the Uninsurability of mass 

market business continuity risks and viral pandemics., and on communicable disease exclusions 

maintaining stability in property/casualty insurance markets amid a global pandemic

Presentation by Robert Hartwig, Clinical Associate Professor; Director, Risk and 

Uncertainty Management Center, University of South Carolina

Dr. Hartwig’s presentation focused on the question of whether or not large-scale pandemic risk is 

insurable. He noted that the issues discussed in his presentation are largely captured in a series 

of three co-authored papers which were provided to members of the committee prior to the 

meeting.

Dr. Hartwig stated that the insurability of pandemic risk is a direct function of certain issues, 

particularly the severity of potential or actual losses, correlation, and diversification. Dr. 

Hartwig said that these problems are intrinsically difficult for insurance markets to manage, 

adding that pandemic risk has an intrinsically systemic nature.

Dr. Hartwig described the challenge of severity as related to pandemic-related risks. He said that 

the economic losses from pandemic-related risks are beyond the combined claims-paying 

resources of the global insurance and reinsurance industry. Dr. Hartwig estimated that in the

United States, business interruption losses have been $1.1 trillion per month. He compared that 

to the total U.S. policyholder surplus for the P&C industry, which is about$800 billion. He 

added that about $4.5 billion in premiums are written each month in relevant P&C lines of 

insurance. Dr. Hartwig provided a state-level example, citing $160 million in monthly premiums 

generated in Illinois, compared to estimated business continuity losses of $2-8 billion.

Dr. Hartwig cited an estimated $9 trillion in total economic losses from COVID-19. He added 

that other pandemics such as H1N1 and SARS were also multi-billion-dollar events, which 

demonstrates an insurability issue based on the severity of the event.
Dr. Hartwig then analyzed the business interruption losses experienced by U.S. small businesses 

with fewer than 100 employees, which he said resulted in losses of at least $52 billion a month. 

Dr. Hartwig said that losses of this magnitude are far beyond anything the insurance industry has 

seen in the past.

Dr. Hartwig stated that the ability to measure and model frequency and severity is fundamental 

to pricing insurance. Although pandemics have historically occurred, the government shutdown 

associated with COVID-19 was unprecedented and effectively un-modellable. This makes it 

difficult to price insurance products within standard pricing models.

Dr. Hartwig then discussed correlation, stating that insurance operates best when losses are 

largely independent of each other. He said that in the United States, during the COVID-19 

pandemic, the S&P 500 declined 34 percent in value in weeks and some of the largest point 

declines in U.S. history occurred within the span of several weeks, with volatility continuing to 

present day. He added that emergency measures put in place by the Federal Reserve and others 

have caused interest rates to decrease to their lowest levels since World War II, and will remain 

depressed for years. Dr. Hartwig stated that the Federal Reserve has signaled that it plans to 

keep interest rates low for the next several years, which will essentially guarantee lower yields 

on the industry’s portfolio. Dr. Hartwig also stated that that policyholder surplus fell by $75 

billion (9 percent) in the first quarter of 2020, largely in response to declining asset values. He 

described this as a measure of the industry’s capacity, and said the decline is only paralleled by 

the financial crisis.

Dr. Hartwig presented a chart demonstrating the volatility in equity markets that has occurred in 

2020. He said that 9 out of the 10 largest point drops in the S&P 500’s history (i.e., since 1923) 

have occurred since the beginning of the pandemic; among these have been the 3rd, 6th, and 19th

largest percentage drops in the history of the S&P 500. 

Dr. Hartwig opined that the longer lasting and more important consideration is the bond market 

and declining interest rates. Following a fairly sharp climb in 2019, Dr. Hartwig described a 

very sharp decline, particularly for shorter-term yields, in 2020. He said this was a response to 

the Federal Reserve’s efforts to stimulate the economy through accommodative monetary policy, 

and reiterated that this is expected to be the case for years. In addition, he added that ten-year 

Treasury notes have dropped more than 100 basis points from the beginning of the year. 

Dr. Hartwig stated that this has resulted decreasing yields on the industry’s portfolio, and added 

that although he previously estimated 3 percent yield, he believes this could be an overestimate 

and drop to 2.9 percent. He said this would rival the lowest recorded yield on invested assets 

since 1961. Dr. Hartwig concluded that all of these factors have a direct impact on the cost and 

availability of insurance.
Dr. Hartwig then discussed May 2020 COVID-19 loss estimates published by Willis Towers 

Watson for multiple lines of insurance, including workers’ compensation, business interruption, 

general liability, and other types of insurance; these are likely to result in a multi-billion dollar 

event. Dr. Hartwig also noted that mortgage insurance has seen an increase in default rates, and 

D&O is likely to increase due to litigation, among other impacts.

Dr. Hartwig emphasized that these facts demonstrate that pandemics produce unexpected losses, 

and some of the ways these losses happen can outlast the pandemic itself. 

Dr. Hartwig described assessment of losses as an additional challenge to the insurability of 

pandemics. He said that six criteria must be established for insurers to actively participate in 

insurance markets:

1. A sufficiently large number of exposure units must exist

2. Losses must be random and unintentional in nature or accidental

3. Losses must be definite and measurable

4. Losses cannot be not exceedingly catastrophic

5. Probability of losses must be calculable

6. Premium charged must be affordable

Dr. Hartwig said that pandemic risk does not satisfy these criteria and he considers large-scale 

pandemics to be uninsurable events. 

Dr. Hartwig reviewed the history of pandemic insurance, noting that only a few products have 

been offered in the market. PathogenRX which was brought to market by Marsh and Munich 

Re, partnering with Metabiotica. The product was brought to market about 18 months prior to 

the first confirmed case of COVID-19, and only one policy was issued. Dr. Hartwig noted that 

although the bond was targeted to a specific industry group, this demonstrated that there was not 

demand for the product. 

Dr. Hartwig described the World Bank’s Pandemic Emergency Financing Facility, a catastrophe 

bond with multiple triggers. The bond was criticized as being slow to pay, because all triggers 

were not met when the money was most needed to prevent the spread of the pandemic. While

the Pandemic Emergency Financing Facility did pay out approximately $200 billion to 

developing countries, the World Bank abandoned its plans for a second Pandemic Emergency 

Financing Facility. 

Dr. Hartwig stated that apart from a limited number of event cancellation policies, no products 

are designed for manage pandemic risks in general. Dr. Hartwig noted that the policy designed 

to manage losses from Wimbledon did pay out, but listed other exposures that are not covered 
such as workers’ compensation (only indirect or tangential), travel insurance, D&O, mortgage, 

trade credit, and others. Products manage some risks around the edges, but there is an enormous 

protection gap for large-scale pandemic risks.

Dr. Hartwig defined pandemic risk as truly systemic with the ability to adversely impact the 

entire economy ($9 trillion per the IMF). Dr. Hartwig concluded that only governments, which 

uniquely possess taxing and borrowing authority, can spread losses over time and bring the 

necessary relief and mitigation to the market. Litigation functions as a destabilizing force in the 

P&C insurance industry and complicates the area. 

Dr. Hartwig discussed the challenges in the reinsurance markets. Reinsurers are concerned about 

managing their aggregate exposure with communicable disease exclusions being filed and 

incorporated within reinsurance treaties. Primary insurers are filing similar exclusions, but these 

exclusions are not being approved by regulators. The rejection of the exclusions by the 

regulators and the imposition of the exclusion by the reinsurers is adversely affecting the longterm relationship between insurers and reinsurers and threatens market stability. Because of this 

disconnect, insurers have three options: 

1. File for parallel communicable disease exclusions.

2. Non-renew policies in their entirety.

3. Allow the un-reinsured exposure to accumulate on their books. 

Dr. Hartwig opined that gaining regulatory approval for communicable disease exclusions would 

be the least disruptive to the insurance industry. He added that this issue is growing, particularly 

as the January 1 renewal period for policies approaches.

Dr. Hartwig concluded that based on the magnitude of losses and correlation effects, there is a 

role for government and private insurer involvement can only be relatively limited. Dr. Hartwig 

said that the government’s taxing and borrowing power allows pooling, diversification, and 

spreading the risk over time. He added that insurers’ ability to do this is extremely limited and 

its ability to be involved in large scale pandemic risk is essentially negligible. He stated that 

there are numerous potential approaches, and his academic paper does not take a position on 

what role the government should play, but reiterated that the government is the only entity that 

can bring a full solution to the pandemic risk issue. 

Member Bach asked Dr. Hartwig if the insurance industry could have benefitted the overall 

economy, the investment picture, and insurer solvency by paying some claims (rather than 

denying all claims), and helping some of their customers stay in business. Dr. Hartwig answered 

that he saw logic in the concept, but the question is how to mitigate the economic impact 

associated with large scale pandemic risk. The government responded through the CARES Act, 

other pieces of legislation, and an accommodative Federal Reserve policy. He said the 
cumulative effort of these fiscal and monetary stimuli were quite effective and had a very 

substantial impact and lessened economic suffering of individuals and businesses.

Dr. Hartwig added that the question is what role insurers can play going forward, which would 

be discussed by Mr. Dixon. He said there is a constructive role, but differences of opinion exist 

as to whether insurers should bear risk as opposed to leveraging their administrative and 

logistical capabilities. Dr. Hartwig added that in terms of actual risk bearing in areas such as

business continuity losses, the insurance industry cannot meaningfully participate without 

jeopardizing its solvency. He stated that $1.1 trillion per month in business continuity losses in 

the United States is 25 percent more than the entire industry’s claim capacity in one month.

Ms. Bach asked whether it would have been more prudent for insurers to quickly pay losses that 

are arguably covered, rather than spending money on litigation to fight the claims. Dr. Hartwig 

responded that insurers are paying covered losses (e.g., an individual who becomes ill at work as 

a result of COVID-19 exposure would receive workers’ compensation coverage; Wimbledon’s 

claims will be paid because it had specific coverage). However, Dr. Hartwig added that 

according to the NAIC, approximately 80 percent of business interruption policies have explicit 

virus exclusions, and all have basic requirements for direct physical loss and damage as a result 

of a covered peril. In these cases, insurers did not pay on these claims because the claim was not 

insured under the policy. He added that insurers will pay as required under contracts, but 

pandemic risk is outside the boundaries of the contract, and never priced in, therefore insurers 

are upholding the integrity of the contract and not paying claims.

Mr. Kochenburger commented that some articles have discussed parametric insurance as 

potentially being very effective in some areas. and asked Dr. Hartwig if he thought programs like 

these should be considered. Dr. Hartwig responded that parametric insurance is an important 

tool in creating risk protection products, reinsurance products, and capital market vehicles that 

could respond to pandemic risks in the future. Dr. Hartwig added that parametric triggers raise 

questions about subjectivity (i.e., who would make the official declaration of a pandemic as well 

as what triggers would cause a declaration?). He added that In the case of the World Bank 

programs, there was a view that the triggers were not appropriately or optimally set, and it 

diminished the ability of countries to prevent the spread of the virus. Dr. Hartwig said 

parametric insurance also raises the question of moral hazard, because it could be tempting to 

make a declaration of a pandemic so payments could be made. This raises a question of whether 

parametric triggers can be designed to avoid moral hazard, and Dr. Hartwig opined a great deal 

of thought would need to go into that process. Dr. Hartwig added that parametric triggers would 

be useful because adjusting claims in a traditional manner [in a pandemic] would be infeasible 

with millions of claims occurring simultaneously.
Presentation by Lloyd Dixon, Senior Economist, Director, RAND Kenneth R. Feinberg 

Center for Catastrophic Risk Management and Compensation

Mr. Crabb introduced Lloyd Dixon, Rand Corporation. Mr. Dixon is an economist and the 

Director of the Rand Center for Catastrophic Risk Management and Compensation. Mr. Dixon 

has extensive expertise in insurance compensation and liability issues and has authored recent 

papers on public entity risk management practices, options for a flood insurance affordability 

program, and attitudes towards risk spreading and insurance. Mr. Dixon is currently examining 

the financial risk management practices of state and local governments and identifying issues that 

might arise in allowing state and local governments to use parametric insurance policies to satisfy 

the insurance requirements of FEMA’s public assistance program. 

Mr. Dixon presented on key issues that should be asked in designing a pandemic insurance 

program. Mr. Dixon described the overreaching policy objective as establishing a risk transfer 

mechanism for epidemic infectious disease. He said that such a mechanism would enable 

businesses to obtain loans at favorable rates, address liability risk, and keep key personnel 

employed during shutdowns. He added that a risk transfer mechanism would also serve larger 

social goals, such as maintaining payroll across the workforce and dampening a broad economic 

downward spiral. 

Mr. Dixon discussed different approaches to achieving these policy objectives, such as through 

fiscal policy, government policy, and insurance policy. He said that from a government assistance 

point of view, programs like a payroll protection plan could provide a liability shield, with a form 

of compensation program for injured parties. 

Mr. Dixon said that insurance mechanisms are attractive in many ways, and could function through 

business expense policies, which would include coverage for payroll expense. Mr. Dixon said the

benefit of such a mechanism would be having the ability to set benefits in advance (unlike ad hoc 

government programs which much be crafted and implemented in the heat of the moment), 

businesses would know the assistance and benefits available in advance. Mr. Dixon added that

that the insurance approach can take advantage of the current claims payment infrastructure, 

leverage insurer expertise and risk mitigation, and ideally transfer risk to the private sector. 

However, Mr. Dixon noted that there are drawbacks of the approach, such as the small amount of 

risk insurers are willing to take in this area. He added that a high take-up rate is not guaranteed 

with an insurance approach, there is difficulty in determining appropriate rates, there is a potential 

for coverage litigation, and in some cases claim payments can be delayed and it could take a while 

for policyholders to receive benefits. 

Mr. Dixon outlined six key questions policymakers and stakeholders should ask in designing an 

insurance-based program, first discussing the policy objective for each question, and second 

providing examples of how proposals have addressed the questions (noting that the examples were 

not comprehensive across all current proposals). 
Question 1: How much risk should the private sector bear?

Mr. Dixon described the policy objective for this question as moving some risk to the private sector 

and providing insurers with incentives to carefully underwrite and adjust claims. Mr. Dixon 

presented a slide summarizing three different proposals: (1) the Business Continuity Protection 

Plan (BCCP), proposed by several large reinsurance groups with no private sector retention for its 

primary program (although it would have an excess program); (2) the Pandemic Risk Insurance 

Act (PRIA) proposal by Rep. Carolyn Maloney (D-NY), in which insurers would pay five percent 

of claim costs over the deductible up to a cap, with an estimated insurer exposure of $50 billion, 

and (3) Chubb’s Small-and Medium-Sized Enterprise Program, in which insurers would pay five 

to six percent up to an industry cap, with industry exposure estimated to increase from roughly 

$30 billion to $60 billion over 20 years. 

Mr. Dixon noted that, consistent with Dr. Hartwig’s presentation, each program’s insurer outlays 

are modest in comparison to government outlays. He acknowledged that this raises questions 

about the purpose of setting up an insurance mechanism when insurer payments would be a small 

percentage of total outlays, but suggested that society may improve at managing pandemic risk 

and the insurance component would then be a meaningful proportion of the response. He added 

that private sector involvement aligns insurer and government incentives in paying claims, 

although there is a tradeoff in creating a program that attracts private sector participation. He noted 

that determining the appropriate tradeoff is a difficult question to answer, adding that TRIA could 

serve as a model of setting initial parameters and adjusting those parameters over time as more 

information becomes available. 

Question 2: How much protection should the program provide?

Mr. Dixon described the policy objective for this question as providing protection that 

meaningfully reduces or transfers risk from affected businesses. PRIA provides coverage on the 

same terms and conditions as the business interruption policy, with a cap of $750 billion. The

Chubb plan also covers 80 percent of expenses up to three months, but with a cap. Mr. Dixon 

noted that current experience has shown that closures could last much longer than three months, 

and having a cap could result in prorating claims, which is not desirable to policyholders. This 

demonstrates the issues with determining the appropriate amount of coverage. Mr. Dixon said it 

is important to understand up front how to best extend or augment benefits, keeping in mind that, 

benefits must be coordinated between the public sector and the insurers.

Question 3: Should the government charge a premium for the risk it bears?

Mr. Dixon described the policy objective for this question as imposing program costs on those 

who benefit, in order to reduce moral hazard and create the right incentives for policyholders to 

take risk mitigation behaviors. There is also an objective of accumulating funds to pay future 

claims. Mr. Dixon said that the BCCP advocates pricing to ensure widespread take-up and reduce 
moral hazard. PRIA and Chubb plans have no charge to the federal government and with insurers 

pricing the product to cover their risk. Mr. Dixon stated there cannot be an expectation for 

businesses to pay the full risk-rated premium, because part of the program’s social goal is to 

provide payroll replacement for all employees, and businesses do not necessarily want to pay for 

this (because they have the ability to layoff and rehire employees as needed). Mr. Dixon also 

stated that the government benefits from limiting a downward economic spiral and reduced tax 

base, which demonstrates that risk-based rates are not being considered. In contrast, Mr. Dixon 

said that premium revenue is desirable to cover smaller regional events, and having meaningful 

premium provides opportunities for rate reductions for risk mitigation premiums. Mr. Dixon noted 

that this is included in some of the current proposals (e.g., providing a premium reduction for 

complying with social distancing and other mitigation measures). Mr. Dixon said he agrees with 

the BCPP approach of considering premium rates that businesses are willing to pay, but 

underscored the importance of having premiums. 

Question 4: Should businesses be required to purchase coverage?

Mr. Dixon described the policy objective for this question as having a widespread take-up of 

pandemic risk insurance. Mr. Dixon said that none of the program proposals have a mandatory 

purchase requirement, but some do have an opt-out or a strong opt-out option. He said that a strong

opt-out would require the policyholder to acknowledge that if they do not purchase coverage, they

will not be eligible for federal benefits. 

Mr. Dixon stated that mandatory purchase requirements are not popular, citing the National Flood 

Insurance Program, and FEMA’s requirement that state and local governments and individuals 

receiving FEMA assistance must purchase coverage as a condition of receiving federal assistance. 

Mr. Dixon questioned whether withholding government through strong opt-outs would be 

politically credible. 

Mr. Dixon stated that relying on lenders could achieve the goal of widespread take-up. He 

suggested that if lenders see that insurance is available and reasonably-priced, they may have 

incentives to require it. 

Mr. Dixon suggested that an educational campaign could help, although the balance between 

premiums and costs would still need to be addressed. He also said that having an ongoing 

understanding of take-up rate (similar to TRIA’s assessment of take-up rates in annual reports) 

would help understand if the premium pricing is producing the desired take-up results.

Question 5: Should eligibility and program benefits vary by firm size?

Mr. Dixon described the policy objective for this question as targeting program benefits to firms 

that need them. He stated that the National Flood Insurance Program has subsidies across income 

categories, and questioned whether this is an effective use of government resources. In 
comparison, he said targeting benefits can take advantage of efficiencies gained by tailoring the 

program to actual market structure and policyholder characteristics. Mr. Dixon stated that neither 

the BCCP nor PRIA consider size; Chubb uses separate approaches for firms with less than 500 

employees and firms with 500 or more employees. Mr. Dixon said that bifurcation of the market 

is attracted given the large disparity between the number of small- and mid-sized firms versus 

large firms. He reported figures of six million U.S. firms with at least one employee, but only 

20,000 of these firms have more than 500 employees. Mr. Dixon added that traditional claims 

adjusting for six million firms during a nationwide pandemic does not seem realistic, therefore for 

a large set of firms, a parametric approach makes sense. In comparison, he said larger firms, which 

are smaller in number, may want to better tailor their risk management strategy, and this could 

warrant a different approach. He said that having more risk management options than smaller firms 

makes larger firms a different type of consumer, and these capabilities may warrant lower subsidies 

for larger firms.

Question 6: Should liability and workers’ compensation coverage be included in a program?

Mr. Dixon described the policy objective for this question as making available the types of 

insurances that businesses need to sustain economic activity and providing a mechanism for 

compensating injured parties. Mr. Dixon said that the proposals focus on business interruption, 

and although adding additional lines of business (i.e., liability and workers’ compensation) would 

add costs, the focus should not be on business interruption just because it was the component that 

received the most attention in the current pandemic. 

Mr. Dixon said that in order to understand the proper approach, further work is needed to 

understand the implications of liability and workers’ compensation exposure on firm business and 

risk management behavior. 

Mr. Dixon concluded that these six questions can be answered with others to create elements 

designing an overall program, adding the combined features of each proposal are likely to be 

desirable. He added that the debate over pandemic risk insurance provides an opportunity to better 

understand if and how insurance can remain an integral part of a U.S. strategy to address a variety 

of considerable risks. Mr. Dixon stated that from a social point of view, he favors using an 

insurance mechanism as much as possible; and said insurance shouldn’t be avoided because a risk 

is difficult to insure, but rather we should understand how insurance should best be used. 

Mr. Heller said that in listening to Mr. Dixon’s presentation, he considered whether there may be 

a role to keep the insurance industry involved for larger businesses (500-1,000+ persons), but noted 

that Mr. Dixon asserted that a government-based structure could not operate using benefits in 

advance. Mr. Heller highlighted unemployment insurance as a model that operates without a 

policy and claims structure, and serves as a federal tax structure to build a response to benefits-inadvance development. Mr. Dixon responded that Mr. Heller raised good potential designs for a 

program, but expressed he was wary of the government’s ability to implement this type of program, 
noting the time and effort required in the U.S. post-disaster declaration process and Congressional 

approval of community block grants. He questioned how this issue could be best addressed, as 

there are many established safety net programs in the United States.

Ms. Bach asked Mr. Dixon how BCCP and PRIA arrived at establishing three-month limit for 

benefits, and asked if there was an assumption that a business should be back on its feet with three 

months of help. Mr. Dixon deferred to the groups who created these proposals, but based on 

conversations it seems to be based on the size of program which would be acceptable or plausible 

for Congress, and three months was deemed to provide some meaningful level of response.

Mr. Andersen asked if the approach being considered in the United Kingdom and Europe are

similar to other approaches being considered. Mr. Andersen also commented that the past 6.5-7 

months have shown that different businesses have been impacted differently (e.g., while some 

businesses have done better, others (such as aviation, entertainment, hotels, and restaurants), have 

done worse). He asked whether Mr. Dixon thought It was possible that that a structure could 

evolve to address industries facing an existential crisis over others. Mr. Dixon responded that the 

current proposals take a binary approach of whether a business is closed or not, but this does not 

reflect the reality where many businesses are partially open. He said that that programs should be 

designed to acknowledge this as an important factor. Mr. Dixon added that this also raised the 

question of whether pricing should be flat across industries or be a form of “risk-based” pricing. 

Mr. Dixon suggested that more thought is needed on this topic, since risk-based pricing could 

discourage certain undesirable activities but could also discourage take-up for high-risk businesses 

which should purchase coverage (e.g., restaurants). Mr. Dixon deferred answering Mr. Dixon’s 

questions about approaches being taken in other countries.

Presentation by L. Charles Landgraf, Senior Counsel; Arnold and Porter

Chairman Glaser introduced the next speaker, Charley Landgraf. Mr. Landgraf is Senior Counsel 

at Arnold & Porter, and he co-chairs the firm’s the legislative public policy practice. Mr. Landgraf 

has represented a broad range of clients in the insurance industry and played a role in shaping 

provisions in the Dodd-Frank Act, Terrorism Risk Insurance Act, and the CARES Act. Mr. 

Landgraf is also serving as counsel to the Business Continuity Coalition, a broad policyholder 

coalition advocating for solutions to pandemic risks. 

Mr. Landgraf stated that a significant protection gap has been identified, and there is agreement 

that non-damage business interruption insurance has largely not been available or covered within 

the pandemic, although variations in coverage terms have given rise to claims. Mr. Landgraf 

opined that saying this coverage has not historically existed should be considered a challenge going 

forward, rather than the end of an observation. Mr. Landgraf added that it is important to focus on 

the fact that there is potential accumulation across a variety of lines other than business 

interruption, and he noted that some of the current proposes do focus on other lines of businesses. 
Mr. Landgraf agreed with Mr. Dixon’s observation that the pandemic has affected different parts 

of the sector in different ways, and this may be important in approaching a solution. Mr. Landgraf 

acknowledged that the policyholder coalition he represents wants to ensure that proposals do not 

risk the solvency of the industry or the willingness of the industry to continue offering coverage 

in other lines of insurance. He added that in the past, many perils have been described as 

uninsurable but later proved to be, in part, insurable. 

Mr. Landgraf reiterated that the challenge is to construct a useful forward in handling pandemic 

risk. He noted that there are a number of jurisdictions around the world, such as the UK Pandemic 

Re Project, that are approaching the issue in a series way rather than labeling the risk as 

uninsurable.

Mr. Landgraf stated that there is a need to learn much more about what has happened to different 

sectors of the economy, because it is clear that the business sector is not a single risk unit. He said 

that the fundamentally different impact on different industries must be understood with more depth 

and comprehension before making conclusions about how to design a program. Mr. Landgraf 

added that catastrophe modeling should also be quickly adapted to this challenge. 

Mr. Landgraf noted that nuclear hazard was previously thought to be uninsurable, and although it 

is still excluded from most commercial insurance policies, the commercial nuclear industry has 

successfully insured against the risk through the Price-Anderson Act. Mr. Landgraf cited this 

program as a model of public-private cooperation. He acknowledged that it depends, in part, on 

retrospective funding., but said it has also been based on channeling the risk through appropriate 

mechanisms rather than assuming that every policy within the economy needs to carry the 

coverage. Mr. Landgraf opined that similar creativity will be needed in addressing the pandemic.

Mr. Landgraf suggested that prevent measures should also be reflected to the extent possible, and 

one of the reasons the insurance industry likely needs to be involved is because of its skill at risk 

mitigation and incorporation of risk mitigation into its products. Mr. Landgraf presented the 

assumption that any non-damage business interruption coverage would likely be designed as a 

parametric product, and said that risk and reward signals out of claims handling would be unlikely 

because the parametric product would respond to the external or exogenous trigger rather than the 

actual policyholder loss. Mr. Landgraf said it is still important to focus on the fact that other 

pricing and policy conditions could apply to different industries, which would permit use of signals 

for risk mitigation and better preparation.

Mr. Landgraf emphasized that every sector and player needs to be involved in a pandemic solution, 

including the insurance industry itself and the reinsurance industry. 

Mr. Landgraf described PRIA as Rep. Maloney’s proposal to effectively adapt TRIA for pandemic 

risk. He said there are many issues with the adaptation, but it makes sense to start with TRIA as a 

model, in part because the take-up rate for terrorism insurance is extremely high (approximately 
70 percent). He added that the PRIA has many good features that could be incorporated. He 

observed two differences between TRIA and PRIA: first, PRIA is entirely voluntary (while one 

of the key features of TRIA is the mandatory make-available requirement); second, PRIA would 

set the universal cap for the private and government sector at $750 billion, but Mr. Landgraf opined 

that this would only cover a fraction of the amount needed for broad-based non-damage business 

interruption. Mr. Landgraf proposed that the cap amount should be re-thought.

Mr. Landgraf said that all proposals other than the Business Continuity Coalition focus on a quota 

share of reinsurance support from the federal government, which is why an overall program cap 

needs to be imposed. Mr. Landgraf said that the coalition proposes that the federal backstop should 

have elements of stop loss prevention, which would potentially be less of a draconian haircut to 

the policyholder community and make the insurance industry more comfortable with the federal 

backstop as solvency protection. 

Mr. Landgraf described the Business Continuity Protection Program (BCPP), advocated for by 

APCIA, NAMIC, and the Big I, as the first program proposal, and said it contains a thoughtfully 

developed parametric product for business interruption, based on a double trigger of a national 

health emergency declaration by the President and a local government shutdown order. He opined 

that the three-month thresholds within the proposed parametric plans were adopted from the 

Payroll Protection Program, which provided three months of payroll to small- and medium-sized 

businesses. Mr. Landgraf suggested that this threshold was adopted as a politically-useful 

reference point for the models (already accepted by Congress).

Mr. Landgraf described the Chubb plan as purely government risk-taking and resembling the 

National Flood Insurance Program’s “write-your-own” program, in which insurers and their agents 

would be deputized to distribute the product, collect premiums, and potentially underwrite some 

risks on behalf of the government; and the entire risk would be held by the federal government. 

Mr. Landgraf said that a second version of the BCPP proposal (called the BCPP Plus proposal) 

added a PRIA-style backstop for other lines businesses. He said the coalition believes it is a useful 

suggestion, but is skeptical that it will add much capacity if adopted on a voluntary basis. 

Mr. Landgraf described the Chubb and Zurich proposals as including parametric products 

providing non-damage business interruption coverage for three months. He said these would be 

considered “primary” products written on the industry’s paper with a mandatory offer requirement. 

Zurich’s proposal would require any insurance selling fixed property insurance coverage to offer 

the parametric business interruption product; Chubb would require insurers to offer coverage to 

small- and medium-sized businesses (500 of fewer employees). 

Mr. Landgraf said that Zurich’s proposal is modeled after the Federal Crop Insurance Program, 

and noted that the insurer is one of the largest crop insurance writers in the United States. The 

Federal Crop Insurance Program is a reinsurer that provides standard forms of reinsurance 
agreements to the insurance industry in one of two reinsurance pools. These different levels of 

reinsurance are based on the direct insurer’s perception of the risk of a particular farm operation. 

Zurich’s proposal would create the Pandemic Reinsurance Corporation, offering 90, 95 or 100 

percent reinsurance. Mr. Landgraf noted that at 100 percent reinsurance, the private insurer would 

effectively be a front company for the federal government, but added that Zurich argues the 

industry’s skills and knowledge in helping to shape risk, and its skill in distribution and claims 

handling are necessary even if an insurer doesn’t ultimately want to take any of the risk. 

Mr. Landgraf said that Chubb and Zurich both believe that having insurers understand the risk by 

being involved with the primary business interruption product is important to ultimately 

understanding how to write excess layers of that product. 

Mr. Landgraf said that the Business Continuity Coalition (BCC) has embraced a number of 

elements discussed in these proposals, and views its own product as a set of draft policy 

recommendations rather than a proposal. The BCC is focused on the need for other lines of 

business (beyond business interruption) to be addressed. Mr. Landgraf said that the BCC is 

currently suggesting that the mandatory offer be modeled on the California Earthquake Authority, 

and says that any property policy issued must include an offer for parametric business interruption 

coverage, but an insurer that does not want to take the risk can arrange for an affiliate to write it 

or support a non-recourse pool that will serve as primary insurer. Mr. Landgraf said that the BCC 

believes the pool would probably become the primary insurer for the majority of risk in the United 

States, and insurers would support the pool through purchase of surplus notes.

Mr. Landgraf said that the BCC is also considering a direct government program like the BCPP, 

but recognize that insurers have access in the program to supporting other lines of business such 

as credit, travel, general liability, certain events cancellation, cast insurance for the media industry, 

and other lines. He also noted that that EIOPA and Lloyd’s of London have issued papers 

suggesting the need for a framework that includes multiple that the insurance industry needs to 

consider all emerging perils, including cyber, pandemic, climate change, and terrorism.

Mr. Birnbaum noted that pandemic risk seems to have the same characteristics as terrorism risk in 

terms of absence of loss history, ability to model risk, scale of the potential event, ruinous claims, 

correlated risk, and systemic risk. He said that TRIA has managed to address these foundational 

issues, and asked Mr. asked Mr. Landgraf whether anything distinguishes pandemic risk from 

terrorism risk for the purposes of developing a public-private program. Mr. Birnbaum also said 

that the NFIP has had terrible performance as a direct insurance entity, and the NFIP uses insurers 

as distributors and claims settlers which creates conflicts of interest: insurers serving as 

administrators versus the interests of policyholders and government, absence of incentives for 

insurers to engage in flood loss mitigation or skewing benefits for those who don’t needed it; and 

the encouragement of repetitive claims over resilience and loss mitigation. Mr. Birnbaum 

compared this to TRIA, which he said has successfully performed in making terrorism insurance 
availability and affordable while aligning interests and incentivizing prevention and resilience. He 

asked why anyone other than insurer program administrators would prefer a program using the 

NFIP model rather than the TRIA model. Mr. Landgraf responded that alignment between the 

industry and policy is important and the BCC wants to align incentives of the insurance industry 

with those of public policy and the government, and is tending toward a program with elements of 

TRIA without several elements that do not translate very well, like the program cap. Both perils 

have been called “uninsurable” although Mr. Landgraf emphasized the need to reflect, study, and 

gather data to understand the pandemic peril both in the United States and elsewhere in the world. 

He said that pandemic risk is like terrorism in one respect; the government has a unique insight 

and role that the private sector will never have (in the case of terrorism, the government has 

knowledge of terrorists that others don’t, and with pandemic the government is the only entity that 

can call for a shutdown – although Mr. Landgraf noted that early analytics on the Paycheck 

Protection Program suggest that the severity of economic impact was almost as great in states that 

did not have early lockdowns as in states that did have early lockdowns). 

Mr. Landgraf said that lessons can also be learned from World War II’s War Damages Corporation, 

which was set up days after Pearl Harbor to insure against enemy attack – at the time, war risk was 

thought to be uninsurable so the government held the risk and the private industry was deputized 

to distribute the product. He added that within one year of creation, the insurance industry wanted 

to participate because they thought it would be profitable to so do; within 12-18 months, the War 

Damages Corporation evolved into a public-private partnership in which the industry took a certain 

amount of downside risk from the overall pool to receive an upside payoff if the pool proved to be 

profitable. 

Mr. Crabb then asked Mr. Landgraf to comment on the BCC’s inclusion of workers 

compensation and general liability insurance in its proposal. Mr. Landgraf responded that these 

areas are evolving, and the BCC wants to highlight that there are other lines of business affected 

and more needed is needed before drawing hard conclusions. He said the BCC is working on 

this and has asked some groups to help with modeling. He stated that the full impact on 

workers’ compensation is still unknown, but he suspects it will be a very hard market because no 

pandemic exclusions exist. Mr. Landgraf added that states are beginning to make assumptions 

about whether or not COVID-19 exposure is work-related (and covered by workers’ 

compensation) or not. He reiterated that the BCC believes an architecture needs to be built that 

will fill in the pandemic and communicable disease exclusions in critical lines for the business 

sector, but data should be studied to find the best analytics about what actually happened, and 

build a model on that basis. He added that that designing the program should involve much 

greater study on risk mitigation efforts (highlighting as an example the use of temperature 

checkpoints in Thailand).

Director Seitz emphasized the importance of FACI remaining engaged and active on this topic, 

and suggested that one potential committee activity could be to examine the proposals discussed 
in the presentations in greater depth. Director Seitz also stated that FIO would continue its 

stakeholder engagement process and consider how FIO’s convening authority can be used to 

help advance discussion on this topic. 

Ms. Ward provided an update on the COVID-19 Subcommittee’s “Preparedness” Workstream’s 

work to provide FIO with specific advice and information that would allow the insurance 

industry to be better prepared for future pandemics or similar broad-risk events. The 

subcommittee plans to present formal recommendations for FACI’s consideration at the 

December 2020 meeting, and may suggest further study of certain topics for 2021. The 

subcommittee seeks to inform FIO on three areas: 

1. Emerging lessons: What activities and coordination made a positive difference for 

consumers, regulators and industry? What should we be ready to coordinate or 

implement in future pandemics? 

2. Uniformity and coordination: Are there situations where it may make more sense for 

there to be a uniform response? Are there opportunities for additional innovation that 

would benefit consumers, regulators, and the industry? 

3. Temporary to permanent: What certain pandemic-related state and federal temporary 

changes in approach could be useful if made permanent?

Ms. Ward summarized preliminary recommendations that the workstream has considered: 

1. For emerging lessons, the NAIC’s guidance has been helpful in providing broader 

industry guidance in several areas, including but not limited to: accounting and reporting 

guidance issued with respect to the timing of quarterly filings, handling of delayed 

premium payments, mortgage loan modifications, and forbearance requests. 

2. Identification of technology constraints that may have been experienced by consumers, 

the industry, and regulators that could be addressed upon—or in advance of—future 

emergencies.

3. Uniformity of data collection, particularly regarding exposure, and uniformity of 

premium relief demonstrating consensus between life insurance and property & casualty 

insurance stakeholders, to the extent possible. 

4. Uniformity on how to address potential changes in credit information for consumers and 

businesses. 

5. Measured and specific recommendations on permitting extensions of certain temporary 

insurance licenses (but not issues of new temporary licenses).
6. Use wet signatures, e-delivery options, and similar practices for which permanent 

changes in practice could help the industry better serve consumers. 

Update from the Subcommittee on Addressing the Protection Gap Through Public-Private 

Partnerships and Other Mechanisms

Following a committee break from 2:28 p.m. until 2:45 p.m., Mr. McGovern provided an update 

from the Protection Gap subcommittee. He summarized that the subcommittee presented 

recommendations to FACI in December 2019, which were ultimately approved and delivered to 

FIO by FACI. These recommendations involved the National Mitigation Investment Strategy 

(NMIS) and demonstrating the effectiveness of mitigation investments; ensuring that mitigation 

is properly coordinated by state and private bodies to ensure that the investment is effective and 

mitigation becomes a standard practice; providing financial and other incentives to encourage 

mitigation and promote innovation in the insurance sector to provide insurance solutions that are 

transparent to policyholders. Mr. McGovern added that the subcommittee asked FIO to use its 

convening power to bring together relevant stakeholders to discuss mitigation. FIO exercised 

this power at the June 2020 meeting, and the California Earthquake Authority and spoke about 

their use of mitigation incentives. 

Mr. McGovern reported that the subcommittee had not met since the June 2020 meeting but 

would schedule a meeting in the next several weeks. Mr. McGovern also requested feedback 

from members of the subcommittee and the full FACI on potential subcommittee or FACI 

engagement with the NMIS working group to have a direct discussion on how the insurance 

sector could assist with raising the profile to support national mitigation efforts.

Mr. McGovern also reported that AXA XL sponsored a recent study by the Cambridge Centre of 

Risk Studies focused on the role of insurance in building resilience and how insurance increases 

the speed and quality of recovery after natural events. He said this may be a topic relevant for 

discussion. 

Mr. McGovern also proposed discussing with FIO whether there may be an opportunity to use 

FIO’s convening authority to hear from agencies in addition to FEMA and the California 

Earthquake Authority.

Mr. Bach reported that United Policyholders has a national project called Risk: Restoring 

Insurance Safety Nets affiliated with Professor Jay Feinman, who has previously presented to the 

FACI on protection gap topics. Ms. Bach indicated that she would share the link to this project 

with Mr. McGovern for potential discussion at the next meeting. 

Update from Subcommittee on FIO’s International Work 
Mr. Falzon described the International Subcommittee’s work as focusing on market access and 

level playing fields that impact U.S. insurers as they operate abroad, with a secondary focus on 

continuing to monitor developments occurring from a regulatory standpoint in the international 

arena, especially with respect to IAIS.

Mr. Falzon reported that the subcommittee has identified nine areas of specific focus related to 

market access, and said the subcommittee is in the process of building out the narrative in these 

nine areas: 

1. Restrictions on Foreign Direct Investment (FDI) and Forms of Establishment

2. Restrictions on Management Control / Key Foreign Personnel / Other Corporate 

Governance Requirements

3. Cross Border Reinsurance Restrictions

4. Data/IT Localization and Digital Protectionism

5. Discriminatory Screening and Approval Mechanisms, and Other Regulatory Trade 

Barriers

6. Non-Regulatory Barriers

7. Anti-Competitive Advantages of State-Owned Insurers and Reinsurers 

8. Capital Outflow Restrictions

9. Implementation, Enforcement and Contract Sanctity

Mr. Falzon reported that the subcommittee has met in full on several occasions, and working 

groups within the subcommittee have met frequently. He reported that the topic of state-owned 

enterprises did not have initial consensus and required additional time spent, and noted that it 

was interested to discuss the topic in the context of how solutions may come about for state 

“owned” solutions and pandemic risk mitigation. 

Mr. Falzon reported that the working group invited a guest speaker from the IMF who had 

studied the use of state-owned enterprises in financial services (though outside of insurance). 

Mr. Falzon reported that the subcommittee is cataloging examples in the nine areas and 

developing narratives for a “playbook” that Treasury and FIO can use in international trade 

discussions. He stated that the subcommittee will provide a final report with exhibits at the 

December 2020 meeting. Mr. Falzon said the industry is generally very supportive of data 

collection, but suggested before holding a third data collection, there should be an understanding 
about how the data is being used, what inferences and conclusions are being drawn, and what 

insights are being drawn, so that the industry has some idea of how the data is being used.

Mr. Falzon reported that the IAIS has issued a final version of the application paper on liquidity 

risk management. He said the industry had concerns that the paper was overly granular and 

prescriptive in its first form, and although this observation is still probably applicable, 

modifications were made in the final version that reflected some of industry’s concerns. 

Mr. Falzon reported that the IAIS published the registrar of all insurers that are IAIGs as 

designated by their local jurisdictions, with the exception of jurisdictions that opted out of 

disclosure.

Mr. Falzon reported that the Financial Stability Board released its key attributes assessment 

methodology for the insurance sector, which relates to insurance resolution frameworks. Mr. 

Falzon identified this as of interest to local regulators which have jurisdiction over resolution 

powers for insurance companies.

Mr. Falzon summarized upcoming IAIS activities. At the end of October, the industry will 

submit data for the beginning of the ICS monitoring period and reiterated his statement from a 

previous meeting regarding industry concern that, in the context of a pandemic, they would 

potentially suggest extending the monitoring period for a year in order to allow for the review of 

a full five years’ worth of data, since the pandemic would limit engagement between regulators 

and industry, and could limit the ability of regulators to digest the data. Second, the release of a 

consultation on the aggregation method is anticipated, which will be a draft definition of the 

comparable outcomes and high-level principles that came out of the Abu Dhabi IAIS meeting. 

Mr. Falzon stated that topic is of great interest to industry and regulators in the United States. 

Mr. Falzon reported that the IAIS is expecting two application papers: one on resolution powers 

and planning and the second on climate-related risks.

Finally, Mr. Falzon reported that the IAIS is expected to issue shortly its consultation on 

liquidity metrics, which are not likely to be in place until 2021. He described this as a 

substantive consultation, given the role that metrics are likely to play in the IAIS’s 

macroprudential initiatives, including monitoring systemic risk.

Presentation and Discussion Led by the Subcommittee on the Availability of Insurance 

Products

Mr. Birnbaum provided background on the subcommittee’s three workstreams: long-term care 

insurance, data privacy, and disparate impact/systemic racism.
On data privacy, the subcommittee received presentations from the U.S. Public Interest Research 

Group and the Chamber of Commerce on the status of data privacy legislation in the states, federal 

proposals, and their views on what federal data privacy legislation should or should not include. 

On long-term care insurance, Mr. Birnbaum reported that the subcommittee was asked to review 

the work of the Federal Interagency Task Force on Long-Term Care Insurance and the work of the 

NAIC’s Long-Term Care Insurance (EX) Task Force. At the time this work was contemplated, 

both groups were expected to produce reports and recommendations in 2020. 

Mr. Birnbaum said that the subcommittee’s work on disparate impact was driven by several 

factors: (1) Treasury report questioned whether disparate impact under the federal Fair Housing 

Act (FHA) should apply to insurance as driven by proposed revisions to the Department of 

Housing and Urban Development’s (HUD) rule on disparate impact challenges under the FHA; 

and (2) the rapid grown in insurers’ use of big data analytics, which has increased concerns about 

the potential for proxy discrimination against protected classes. 

Mr. Keiser said that the subcommittee recognized early in its discussions on disparate impact that 

the landscape had changed dramatically. He added that the George Floyd incident and many 

others, the involvement of the professional sports teams, and protesting within communities 

changed the issue, and the topic became very relevant. He identified the timeliness of the 

subcommittee’s efforts as being critical, and said the importance of the industry addressing this 

issue became obvious when specific insurance companies took strong positions and made 

recommendations to the subcommittee. Mr. Keiser said that the subcommittee spent the majority 

of its time working to bring the subcommittee to a unified position, because it is an emotional issue 

and such an important issue that the subcommittee worked hard to unify around the right answer. 

Mr. Keiser emphasized that there was agreement that appropriate action was necessary and 

important, however there was difficulty in identifying and agreeing to what action was appropriate. 

Mr. Birnbaum said the subcommittee started its work on disparate impact in 2019, and describe 

disparate impact in the context of insurance as things that have the effect of discriminating against 

protected classes, but do not explicitly use protected classes as a characteristic. Mr. Birnbaum said 

that the FHA has recognized disparate impact claims since its passage, and numerous court cases 

have affirmed that disparate impact is unfair discrimination, and that disparate impact claims 

regarding home insurance are covered under the FHA. For additional background, Mr. Birnbaum 

referred members of the committee to HUD’s Reconsideration of Public Comments on Application 

of the Fair Housing Act’s Discriminatory Effects Standard to Insurance (October 2016), which 

was distributed to the committee prior to the meeting. 

Mr. Birnbaum said that disparate impact can also be called proxy discrimination against protected 

classes, which refers to the use of a proxy for a protected class characteristic that has the effect of 

discriminating against that protected class. Mr. Birnbaum emphasized that simply showing a 

disparate or disproportionate effect is not sufficient to prove a disparate impact claim.
Mr. Birnbaum stated that prior to its most recent rulemaking, HUD adopted a three-part burdenshifting process to identify disparate impact. First, the charging party would bear the burden of 

proving a prima facie case that a practice results in or would predictably result in a discriminatory 

effect on the basis of a protected class characteristic. If the charging party or plaintiff proved the 

prima facie case, the burden would shift to the respondent or the defendant to prove that the 

challenged practice is necessary to achieve one or more of its substantial legitimate nondiscriminatory interests. If the respondent or defendant satisfied its burden of establishing a 

legitimate nondiscriminatory interest, the charging party would then have the burden of 

establishing liability by proving that the substantial legitimate nondiscriminatory interest could be 

served by a practice that has a less discriminatory effect.

Mr. Birnbaum provided an example from the 1990s where fair housing groups challenged insurers’ 

use of a home’s age and value as underwriting factors for home insurance, because those factors 

had a disparate effect on communities of color; the fair housing groups were able to show this by 

testing for declination. by making assumptions regarding the home condition based on these 

factors. This shifted the burden to insurers to demonstrate a sound business rationale for the use 

of home age and value and also that there was no less discriminatory manner to achieve the 

business outcome. Mr. Birnbaum stated that age and value were used as underwriting factors to 

assess the condition of the home, but because these were crude measures of home condition, 

insurers turned to better indicators of risky home condition, such as the condition of roof and 

electrical system; this resulted in improved risk-based underwriting as well as improved 

availability of insurance.

Continuing with his discussion of background on the topic, Mr. Birnbaum referenced Treasury’s 

2018 report, A Financial System that Creates Economic Opportunities: Asset Management and 

Insurance, which recommended that HUD reconsider the application of disparate impact to 

insurance practices under its 2013 rule and analyze whether the application of the rule is consistent 

with the McCarran-Ferguson Act and relevant state laws. In 2019, HUD proposed revisions to the 

disparate impact rule and Mr. Birnbaum cited FIO’s 2019 annual report, which discussed some 

features of the proposed revision. 

Mr. Birnbaum said that following several conversations on disparate impact, he proposed two 

recommendations for the subcommittee’s consideration: 

1. FACI recommends that FIO support disparate impact as unfair discrimination against 

protected classes in residential property insurance under the Fair Housing Act as currently 

recognized by the Department of Housing and Urban Development (HUD) and oppose the 

proposed revisions to HUD's disparate impact rules. 

2. FACI recommends that FIO encourage states to modernize insurance regulation by explicit 

recognition of disparate impact as unfair discrimination against protected classes and 

further encourage states to develop statutory or regulatory guidance for insurers to identify 
and minimize disparate impact against protected classes and for safe harbors for insurers 

to demonstrate compliance.

Mr. Birnbaum stated that these proposed recommendations were discussed at length, but faced 

opposition. APCIA’s response to the proposed recommendations was distributed to members of 

the committee prior to the meeting. Both proposed recommendations and several alternatives 

failed to be passed by the subcommittee. 

Mr. Birnbaum stated that the issue was revisited after George Floyd was killed in May 2020 and 

several industry leaders spoke out against systemic racism and inherent bias in society at large, 

and pledging to address these problems both within their companies and in society. Mr. Birnbaum 

added that a number of organizations who previously supported revisions to HUD’s disparate 

impact rule also asked HUD to withdraw the rule and study the issue further.

Two new proposed recommendations were presented to the subcommittee for consideration in 

August. Mr. Birnbaum identified these as: (1) a recommendation to study proxy discrimination 

against protected classes in personal auto, homeowners, and small business insurance (which 

would be presented to FACI for consideration later in the meeting); and (2) a recommendation for 

FIO to request that HUD delay issuance of the final rule pending further study (which was rendered 

moot because HUD issued a final rule before the subcommittee voted on the recommendation).

Mr. Birnbaum provided a summary of NAIC activities related to race and insurance. He stated 

that several years ago, the NAIC created the Big Data Working Group to examine issues emerging 

from insurers' use of big data analytics and artificial intelligence. In 2020, the working group was 

charged with reviewing current regulatory frameworks used to oversee insurers' use of consumer 

and non-insurance data, and recommending modifications to model laws governing the insurance 

life cycle. The working group was also charged with proposing a mechanism to facilitate state 

sharing of resources for conducting technical analysis and data collection related to the review of 

complex models used by insurers. Third, the working group was charged with assessing data needs 

and requiring tools for state insurance regulators to appropriately monitor the marketplace and 

evaluate underwriting, rating claims, and marketing practices. Mr. Birnbaum characterized these 

charges as being intended to educate regulators on the status of big data practices and to look at 

regulators' concerns with big data analytics, including the potential for proxy discrimination or 

bias.

Mr. Birnbaum said that the efforts of the Big Data Working Group ended up with the NAIC’s

Accelerated Underwriting (AUW) Working Group. Mr. Birnbaum characterized AUW as the 

corollary to the property & casualty sector’s use of predictive modeling using credit scores and 

other non-insurance data. Mr. Birnbaum said that the AUW working group has been reviewing 

these issues for approximately a year, including the potential consumer harms (such as the potential 

for proxy discrimination) associated with the application of big data analytics predictive models. 

He added that the AUW Working Group is preparing recommendations for further action by the 
end of the year. 

Mr. Birnbaum noted that the Big Data Working Group reports to the Innovation and Technology 

(EX) Task Force. This task force also had an Artificial Intelligence Working Group, which 

developed NAIC’s Principles for Artificial Intelligence, which were adopted at the August 2020 

NAIC Summer National Meeting. Mr. Birnbaum quoted these principles as intended to “establish 

consistent high-level guiding principles for AI actors” and “be used to assist regulators and ANIC 

committees addressing insurance-specific AI applications.” Mr. Birnbaum said the principles 

addressed four areas: fair and ethical, accountable, compliant, and transparent. The fair and ethical 

section included, over industry opposition, a principle that insurers should, consistent with the riskbased foundation of insurance, proactively avoid proxy discrimination against protected classes. 

He added that the fair and ethical section included a principle that insurers should, consistent with 

the risk-based foundation of insurance, proactively avoid proxy discrimination against protected 

classes.

Mr. Birnbaum summarized the work of the NAIC’s Casualty Actuarial and Statistical Task Force 

(CASTF) over the last two years. CASTF was directed to develop a white paper on regulatory 

review of predictive models focusing on personalized pricing. The paper included guidance that 

regulators should review "the rational relationship" or "rational explanation" between data and the 

predicted outcome. Mr. Birnbaum stated that this explanation requirement faced opposition from 

insurers and state legislators who felt that state law only required a simple correlation to meet a 

standard of “not unfairly discriminatory” and felt that requiring an explanation. Mr. Birnbaum 

noted that CASTF did not include guidance on proxy discrimination against protected classes. The 

paper has been adopted by CAST’s parent committee, the Property and Casualty Committee, with 

references to rational explanation intact.

Mr. Birnbaum stated that the NAIC recently created a Special Committee on Race and Insurance, 

which held its inaugural meeting several weeks before. recently creating a special committee on 

race and insurance. The committee adopted five workstreams, each of which are intended to make 

recommendations or action steps and coordinate with other NAIC groups: 

1. Research/analyze level of diversity and inclusion within the insurance industry. 

2. Research/analyze level of diversity and inclusion within the NAIC and state insurance 

regulator community. 

3. Examine and determine which practices or barriers exist in the insurance sector that 

potentially disadvantage people of color and/or historically underrepresented groups in the 

Property and Casualty line of business. 

4. Examine and determine which practices or barriers exist in the insurance sector that 

potentially disadvantage people of color and/or historically underrepresented groups in the 
Life Insurance and Annuities lines of business.

5. Examine and determine which practices or barriers exist in the insurance sector that 

potentially disadvantage people of color and/or historically underrepresented groups in the 

Health Insurance line of business.

Mr. Birnbaum said that the NAIC’s Anti-Fraud Technology Working Group has been revising 

anti-fraud plan guidelines, and recently rejected a proposal that insurers’ anti-fraud plans should 

include policies and practices to detect systemic racism and proxy discrimination against protected 

classes and anti-fraud algorithms and practices. He also reported that the Market Conduct 

Examination Standards Working Group has briefly discussed systemic racism and biased

algorithms and the implication for market conduct examiners. He also reported that, at the August 

NAIC Consumer Liaison meeting, health insurance consumer representatives presented on the on 

the disparate disproportionate impact of COVID-19 on communities of color, and the Center for 

Economic Justice presentation on the lack of regulatory action on systemic racism and insurance 

prior to the death of George Floyd. Mr. Birnbaum also noted that several years ago, the NAIC’s 

Property/Casualty Committee issued a paper on auto insurance affordability, and CASTF issued a 

paper on price optimization, but he added that neither addressed issues of proxy discrimination or 

systemic racism in insurance. Mr. Birnbaum summarized the NAIC as having many workstreams 

directly and indirectly addressing systemic racism and inherent bias in insurance, but opined that 

he has not identified the proposal or any concrete actions or studies. 

Ms. Dwyer disagreed that the NAIC has not addressed issues relating to race until recently, and 

said she believes commissioners address the topic all the time and are always looking for fairness 

from industry, adding that it may be a matter of how the topic is being discussed. 

Mr. Birnbaum discussed the disparate impact recommendation proposed for FACI’s consideration. 

He said the recommendation was drafted by Mr. Heller in an effort to bridge some of the 

disagreements among the subcommittee’s members. Mr. Birnbaum agreed with Mr. Keiser’s 

statement that there was broad agreement among members for pursuing a study, but there was 

general disagreement over what entity should carry out the study. 

Mr. Birnbaum noted that some members suggested that FIO should recommend that GAO conduct 

the study, instead of having FIO itself conduct the study. The argument for this is that a FIO study 

may not be seen as impartial in the current political climate, but the GAO has a strong reputation 

for independence. Proponents cited an FTC study on credit scoring that had been criticized as 

support for having an independent agency conduct a study. Mr. Birnbaum said that those 

supporting having FIO conduct a study argued that FIO has a specific mandate under the DoddFrank Act to monitor the availability and affordability of insurance in underserved communities, 

and the proposed study fits within this mandate. They also argued that FIO has statutory authority 

to collect data from insurers if not otherwise available from state regulators or other sources. Mr. 

Birnbaum added that FIO has experience in understanding insurance data due to its work on the 
auto affordability index and TRIA data collection, and noted that one of the criticisms of the 

aforementioned FTC study focused on problems with the data used by the FTC and the agency’s 

lack of experience with insurance data. Mr. Birnbaum noted that the GAO also does not have 

particular expertise with insurance data and data collection. Mr. Birnbaum identified additional 

arguments, for FIO to conduct a study, noting that Treasury has previously weighed in on the topic 

of disparate impact; and FIO is not able to request a study by the GAO, since requests of the GAO 

must come from Congress.

Mr. Keiser stated his reservation with the proposed recommendation, specifically regarding the 

second paragraph under discussion, which defines proxy discrimination or disparate impact. Mr. 

Keiser suggested the definition used in this paragraph was too broad, and places the development 

of future models (using creative algorithms) at risk; he said this creates the risk that all activities 

could potentially fall under the definition of disparate impact because one of the groups could be 

affected. Mr. Keiser added that previous work provided an opportunity for insurers to defend the 

use of an approach, but this definition does not provide that as a clear option. Mr. Keiser stated 

hat he raised this concern with the subcommittee and accordingly had voted against the 

recommendation at the subcommittee level.

Mr. Heller stated that, at the June 2020 FACI meeting, Chairman Glaser had charged the 

subcommittee with continuing to work on the topic, as there was recognition of the challenges 

involved but an understanding that if the subcommittee could reach a majority position, then FACI 

should consider a recommendation again. Mr. Heller said that the subcommittee was not providing 

a consensus argument per se, but suggested there was a significant majority who agreed with the 

sense that American society has structural elements that foster a persistent bias against Black 

Americans and other people of color, and that these problems extent beyond law enforcement and 

into aspects of social and economic life. Mr. Heller expressed his hope that the proposed 

recommendation captures that sensibility and applies it in a way that fits within FIO’s statutory 

mandate.

Mr. Heller quoted FIO’s authority under Dodd-Frank to “monitor the extent to which traditionally 

underserved communities and consumers, minorities, and low and moderate income persons have 

access to affordable non-health insurance products.” Mr. Heller opined that the committee could 

use its expertise in insurance to assess the possibility that the industry has a role to play—and may 

have room to improve—with respect to issues of race. He added that he believes that the intent of 

FACI is for its members to step away from their organizations’ specific interest to assist FIO in 

more fully understanding the insurance industry and its implications for consumers, businesses, 

and the economy. Mr. Heller addressed Mr. Keiser’s concern by expressing his belief that FIO 

would be able to specify a meaningful definition of disparate impact that reflects the widely-held 

and understood definition, and provide an analysis of the differences between “fair” discrimination 

identified by Mr. Keiser (which is an inherent part of insurance) and “unfair” discrimination that 

results when there is a disparate impact in pricing, underwriting, or practices. Mr. Heller 
concluded that he believes the recommendation aligns with FIO’s responsibilities and the broader 

social imperative for FACI to act, and requested the committee’s support of the recommendation.

Heller then stated that the FACI can use our expertise to review and assess the possibility that the 

insurance industry has a role to play and may have room to improve with respect to issues of race. 

Member Heller further expounded that one is called to serve on FACI, to step away from the 

specific interests of our companies, our organizations, and our states to assist FIO and the federal 

government to more fully understand the insurance industry and its implications for consumers, 

businesses, and the economy.

Mr. Crabb highlighted that the NAIC just launched a major workstream on race and insurance, 

which has strong support from the insurance industry. He suggested that coordination with the 

NAIC would be optimal and avoid duplication and potential confusion as the different 

workstreams progress. He concluded there is an opportunity for FACI and FIO to monitor 

availability as determined through the NAIC, and noted that this type of oversight would align 

with how FACI is approaching its role relative to long-term care insurance.

Mr. Crabb expressed the opinion that disparate impact and its application to insurance is unclear, 

and the subcommittee spent a significant amount of time working to understand the 2013 HUD 

rule’s application of disparate impact to homeowners insurance in light of the subsequent standards 

set by the U.S. Supreme Court in the Inclusive Communities case. Mr. Crabb added that within 

the past 30 days, HUD issued its updated rule to address the Inclusive Communities Case, but the 

subcommittee has not yet been briefed on the new rule. Mr. Crabb stated that no state has adopted 

a disparate impact standard in the manner described in the proposed recommendation, and added 

that there are legitimate concerns that a study focusing on application of such a standard will 

conflict with current state laws requiring insurers to set rates on objective risk criteria for 

individuals and businesses. Mr. Crabb said that he therefore did not support this proposed 

recommendation.

Mr. Crabb expressed his appreciation and agreement with the desire to take meaningful action on 

the topic of race and social justice, but suggested it is premature for FACI to consider its own study 

and that if a study is considered, FACI should consider other options, such as the suggestion to 

request a GAO study.

Mr. Kochenburger expressed strong support for the recommendation and opined that FIO is the 

best entity to address the issue, because it has insurance experience and a particular mandate. Mr. 

Kochenburger said that the work would not be duplicative of the NAIC, because a nationwide 

study is needed. He said that the NAIC’s work is important and it will provide essential data and 

standards for consideration, but by definition, it cannot provide anything other than state-based 

suggestions for mandates. Mr. Kochenburger said a national approach is needed, rather than 

multiple different standards, citing “headaches” caused by multiple standards and litigation 

uncertainty. Mr. Kochenburger added that the recommendation is not for creation of model laws 
or regulations or to issue an agenda, but rather to study the issue. He emphasized that the 

recommendation is not to suggest a definitive definition of disparate impact or proxy 

discrimination, but rather to evaluate and understand the issues and try to address confusion around 

the topic (e.g., what does the HUD 2013 standard mean? What do the revisions mean? How 

would different administrations approach the issue? What information can be used for 

enforcement?). 

Mr. Falzon agreed that there is alignment on the substance of what should be done but there is less 

alignment on how it should be done. He noted that the membership received the proposed 

recommendation on Friday (shortly before the meeting), so many FACI members did not have an 

opportunity to engage on the topic outside of the committee itself. He suggested that FACI may 

want to take additional time to consider the best way to undertake a study in a non-partisan way 

which will arrive at the right outcomes for consumers and the industry.

Mr. Kelleher stated that the recommendation feels duplicative of the NAIC’s proposed work, but 

noted that it doesn’t appear that the NAIC’s work has matured enough to know. He questioned 

whether FIO has the capacity, resources, and expertise to conduct a comprehensive study across 

three lines of business in every state. Mr. Birnbaum said that the subcommittees work is monitored 

by FIO and there has not been any feedback suggesting this is beyond the office’s capabilities.

Chairman Glaser responded to Mr. Falzon and stated that the topic has been in front of FACI and 

the subcommittee for a while, and acknowledged that a time there is a close vote at a subcommittee 

level there is some level of concern about whether there is consensus. However, if there is a simple 

majority in a motion at the subcommittee level, a recommendation can be brought to the full FACI 

for consideration. Then, in order for FACI to send something to FIO as a formal recommendation, 

a two-thirds majority of the full committee is needed to pass the recommendation. He 

acknowledged that the question of the best approach to this work is legitimate, and there are many 

variables to consider because this is a complicated topic. Chairman Glaser explained that 

procedurally, under the bylaws, a member has the option of requesting to delay a vote by bringing 

a motion that is passed by a simple majority vote.

Mr. Birnbaum concluded by responding to previous discussion. He stated that the 

recommendation for a study is not an accusation, but rather a study to determine the presence of 

impact. He said this responds directly to one of the arguments in opposition of the original 

recommendations (stating that there was no evidence that disparate impact even exists in 

insurance). Mr. Birnbaum also stated that monitoring the NAIC is inconsistent with FIO’s mission 

and would result in delaying action. He said that FIO has a very specific mandate under the DoddFrank Act to monitor availability and affordability in underserved areas; not to monitor the work 

at the NAIC. Mr. Birnbaum re-emphasized that the NAIC does not have anything documented on 

conducting a disparate impact study, and further suggested it is unlikely that a study would be 

produced in the near future. He added that FIO can coordinate with the NAIC, and has done so on 
business data collection, terrorism, and auto affordability. Mr. Birnbaum expressed his concerns 

that the proposals opposing the present recommendations are delay tactics to prevent substantive 

action on the issue. Mr. Birnbaum responded to suggestions that that the applicability of disparate 

impact to insurance is unclear by saying that the industry has made a fundamental error in assuming 

that disparate impact analysis is inconsistent with cost-base pricing and stated that NAIC regulators 

have clearly indicated that they believe they have the authority to address proxy discrimination 

against protected classes. Mr. Birnbaum concluded that the issues have been thoroughly discussed, 

and while arguments to have a GAO study are well-intentioned, they do not provide as strong as 

an argument as for why FIO should not conduct a study. 

Mr. Thresher disagreed with Mr. Birnbaum’s statement that alternative proposals would delay any 

work. 

Mr. Birnbaum summarized the subcommittee’s review and evaluation of the recommendations 

made by the Federal Interagency Task Force on Long-Term Care Insurance. Mr. Birnbaum 

summarized eight of the recommendations made by the task force:

1. FIO coordinates an analysis of the impact of LTC combination products on the market for 

LTCI protection;

2. FIO monitors the market for Short Term LTCI;

3. Congress amends the Internal Revenue Code to permit payment of incidental benefits 

under qualified LTCI policies; 

4. Congress amends the Internal Revenue Code to revise inflation protection to authorize 

Treasury to set inflation protection standards for qualified LTCI policies;

5. Congress authorizes HHS to amend inflation protection for LTC partnership LTCI policies;

6. Congress amends or authorizes HHS to amend federal law references to NAIC models;

7. FIO monitors NAIC action on national approach to LTCI rate reviews; and

8. Federal agencies work through the Financial Literacy Education Commission to assess and 

improve federal education resources on LTC. 

Mr. Birnbaum clarified that “short-term LTCI” refers to insurance that provides similar support 

and benefits as long-term care, but for a shorter time period of less than one year. He noted that 

recommendations three through six are legislative proposals for Congressional action, and 

therefore the subcommittee did not identify a significant role for FIO (particularly since FIO is 

already a member of the Task Force that made the recommendation). He added that 

recommendation seven falls within FIO’s existing Dodd-Frank responsibilities, and 
recommendation eight is not FIO focused, since the Financial Literacy Education Commission has 

access to organizations with a focus on long-term care services, support activities, and education. 

Mr. Birnbaum characterized recommendations one and two as areas of reasonable focus beyond 

FIO’s general activities, and said that he subcommittee’s recommendations are oriented around 

how FIO can and should monitor the long-term care combo market and the shirt-term LTCI 

markets. Specifically, the recommendations outline the four proposed steps in this monitoring 

process.

Ms. Dwyer provided a summary of the NAIC’s activities on long-term care. She said that the 

Long-Term Care (EX) Task Force at the NAIC is not looking at the more modern approaches to 

long-term care, but rather is looking at the legacy blocks of insurance that have potential solvency 

and rate issues, because each of the states is receiving filings for these legacy blocks and it is 

difficult to coordinate information. She said that the task force is looking at these issues on a 

national basis so the information can be used in each of the states. Mr. Dwyer said that pre-2000 

blocks may have been underpriced, assumed lapse rates and interest rates were low, and insured 

are living longer and accessing more services under these policies. She said these are very difficult 

rate reviews for states to conduct and they examine them closely on a state-by-state basis, but the 

NAIC is working to try to coordinate information.

Ms. Schmidt described the work of the multi-state rate review workstream, one of five 

workstreams established by the Long-Term Care (EX) Task Force. She noted that each state has 

separate authority over the review of long-term care rates, and the workstream does not change 

that fact. Previously, states were informally sharing approaches to rate review, but there was no 

formal mechanism for the states to share information and try to understand actions taken by other 

states with respect to a particular rate filing. Accordingly, the workstream discussed ways for 

states to best share information and analysis with regard to rate increases that insurers proposed to 

make on a national basis. The intent is for states to better understand the methodology and analysis 

being employed in other states before considering specific rate proposals. Ms. Schmidt 

emphasized that this process does not supplant the individual state’s statutory authority over longterm care rate reviews, but rather provides context and information that a state can consider in 

conjunction with a filing.

Ms. Schmidt said that several pilot projects are underway to determine what information would be 

valuable and what input individual states would like to provide to the national product. She said 

that the task force’s 2021 workstreams will be changing slightly, but the multi-state rate review 

workstream will remain ongoing. The workstream will be called the LTCI Multi-State Rate 

Review Subgroup, and be charged by Commissioner Mike Conway of Colorado.

Ms. Dwyer described the restructuring techniques workstream of the task force, which looks at, in 

part, statutes available in states that allow the restructuring of solvent insurers. The workstream is 

gathering information on (rather than recommending) available restructuring mechanisms to make 
available for commissioners’ consideration. Ms. Dwyer explained that restructuring options vary 

depending on the solvency of the carrier, and in most cases, when a carrier is solvent, there are 

several state statutes that might provide an opportunity for the company to restructure a long-term 

care book. However, she added that there are strict statutory guidelines to do so, primarily to 

ensure protection of the consumers of these long-term care products. Ms. Dwyer noted that if an 

insurer is in rehabilitation, the rehabilitation court may have additional powers to effectuate 

restructuring. She added that if an insurer is insolvent, there are additional court-supervised 

alternatives and guarantee fund obligations as well. Ms. Dwyer confirmed that consumer interests 

are of primary concern to regulators and the courts in each of these situations. 

Ms. Dwyer stated that long-term care is a relatively new line of business, and there is virtually no 

case law interpreting restructuring options for long-term care blocks. She noted that some state 

statutes are based on the United Kingdom Part Seven transfers, which has some case law, but it is 

not clear whether this would have any applicability to long-term care. Accordingly, the workstream 

is working to select a contractor to gather and provide information for commissioners to consider 

accessing in protecting consumers in the state.

Ms. Schmidt described the work of the reduced benefit options workstream. She said that in 

reviewing proposed LTC rate increases, most states have required insurers provide some reduced 

benefit options that are not otherwise available under the contract. This assures that a consumer 

who has been paying premiums for years will not simply cancel a policy if premium rates become 

too high. For example, a consumer could avoid most of a rate increase by choosing to reduce the 

inflation factor included in a policy (Mr. Schmidt noted that many of the legacy policies have a 5 

percent or 3 percent compound or simple inflation factor), reduce daily benefits, or reduce the 

length of coverage. Ms. Schmidt confirmed that these contract changes are solely at the option of 

the consumer and cannot be imposed by the insurer.

Ms. Schmidt said that regulators are requiring insurers to provide options so consumers can 

evaluate their individual financial situations and decide what works best for them. She added that 

while most states have been doing this, little information-sharing was occurring between the states, 

which resulted in the formation on this workstream. She said that a number of non-actuarial 

considerations received considerable attention from workstream members, including the use of 

caps and phase-in periods. The workstream identified best practices and ways to reduce state 

variances, and referred these guidelines to the multi-state rate review group. Ms. Schmidt noted 

that the multi-state rate review subgroup has included this guidance in part of its pilot project and 

advisory report, and will further assess how this guidance will be incorporated into the multi-state 

rate review process.

Ms. Dwyer discussed the data call design oversight workstream. She said that states review their 

own data when reviewing rate filings, and although there is a comparison to national data, there 

has not been an overview of the picture at a whole company or whole industry basis. The intent 
of this workstream was to address this issue; a consultant was hired to analyze data that had been 

provided to the state of Virginia through a data call, and the data was shared on a regulator-only 

basis through the NAIC’s information-sharing agreement. The workstream held two regulatoryonly calls to understand the data, and is continuing to review the information and hopes to 

communicate some findings to the public later in 2020. 

Ms. Schmidt reviewed the final LTCI workstream on evaluation of LTCI reserves. She noted that 

reserves affect both rates and solvency; while too high of reserves will increase rates, too low 

reserves can result in insolvency. She said that the workstream is coordinating valuation and rating 

issues affecting reserves by considering issues identified through the review efforts of the actuarial 

and financial analysis group at the NAIC.

Committee Presentation of Advice and Recommendations to FIO

Chairman Glaser confirmed that the FACI bylaws state that recommendations pass if they receive 

two-thirds of votes cast. He stated that he would read each proposed recommendation then call 

for a voice vote. If the result of the voice vote was unclear, a roll call would be conducted. 

Members were able to abstain from voting, but the two-thirds majority would be calculated based 

on total votes cast and would not include abstentions. 

Chairman Glaser read the proposed recommendations on long-term care insurance:

FACI recommends the following actions by FIO in response to two recommendations in 

the “Report of the Federal Interagency Task Force on Long-Term Care Insurance” 

(“Report”). Among other things, the Report recommends that: 

• FIO coordinate an analysis of the impact of LTC combination products on the 

market for LTCI risk protection; and

• Federal policymakers work with their state counterparts and with private sector 

stakeholders to evaluate and monitor the market for limited LTCI, including 

potential impacts on the risk pool for longer-term products and on Medicaid. 

The recommended actions for FIO are:

1. Identify key issues / metrics that should be part of market monitoring for these 

products; 

2. Identify current information about participants, sales, claims and other data 

relevant to inform the key issues in these two product markets;

3. If needed, propose any additional data collection for states/NAIC or FIO or others 

to monitor these markets: and

4. Include analysis of these markets in FIO's annual report. 
Mr. Keiser made a motion for FACI to present the recommendation to FIO.

No additional discussion was made on the motion. 

Chairman Glaser requested to bypass the voice vote. Ms. Baldwin conducted a roll call vote: 

In favor: Andersen, Bach, Birnbaum, Branch, Crabb, Dwyer, Falzon, Glaser, Heller, 

Keiser, Kelleher, Kochenburger, McGovern, Schmidt, Stolfi, Thresher, Ward 

Opposed: None 

Abstentions: None 

Motion passed (17-0-0). 

Mr. Kelleher asked for clarification on the rule regarding abstentions. Chairman Glaser stated that 

members can abstain from any vote, and two-third tally is calculated by votes cast. Therefore, 

abstentions are ignored and only votes casts are counted.

Mr. Falzon asked for clarification on when a motion can be made to amend the language of a 

recommendation. Mr. Glaser responded that after the recommendation is read, additional 

discussion can be held and motions can be accepted to change the recommendation. 

Mr. Glaser read the proposed recommendation on disparate impact:

FACI recommends that the Federal Insurance Office conduct analyses of the presence of 

disparate impact or proxy discrimination against protected classes in the sale of private 

passenger auto and residential property to consumers and business owners insurance to 

small businesses. 

Chairman Glaser called for any edits to the recommendation, additional discussion, or motions. 

Mr. Heller made a motion for FACI to present the recommendation to FIO.

Mr. Falzon proposed revising the amendment to remove the phrase “Federal Insurance Office 

conduct analysis” and replace it with the language “Federal Insurance Analysis have analyses 

conducted.” He suggested this may bridge the gap and prevent slowing down the study while 

leaving open the opportunity to look at the most effective way for it to be conducted; it would 

leave open whether FIO conducts the study or a separate agency is engaged.

Mr. Thresher commented that he was not sure how the amendment would change the vote on the 

proposal. 

Chairman Glaser commented that in reading the proposed recommendation, it appears that a word 

is missing, and that “in the sale of private passenger auto and residential property to consumers” 
could be read as involving the purchase of property rather than the purchase of insurance. He 

suggested the language should be changed to read “in the sale of private passenger auto and 

residential property insurance to consumers.” Mr. Heller responded that when originally drafted, 

the intent was to consider private passenger auto, residential property to consumers and business 

owners, and then collectively insurance. He agreed there was a lack of clarity and it would be 

acceptable to insert the word “insurance” after each term, as this would reflect the original intent.

Ms. Baldwin provided clarification that a two-thirds vote would be required to change the 

recommendation’s language on a proposed amendment, as it would constitute a substantive 

revision.

Mr. Falzon responded to Mr. Thresher’s comment and clarified that his proposed change was 

intended to leave the door open for a subsequent discussion with FIO to determine whether the 

analysis would be best done directly by FIO or whether FIO should coordinate with another federal 

agency or the NAIC to do the analysis.

Mr. Birnbaum expressed opposition to Mr. Falzon’s proposed revision and support for Mr. 

Glaser’s proposed revision. He said that the phrase “have analyses conducted” is amorphous, and 

rather than opening a door it makes the recommendation meaningless, because it is not clear who 

should be held accountable or who should be acting. Mr. Birnbaum added that if there is concern 

about FIO coordinating with others, then using the term “conduct analyses” is suitable language, 

because FIO conducts analyses with TRIA while coordinating with the NAIC; it also conducts 

analyses of business interruption while coordinating with the NAIC and other federal agencies. 

He re-iterated that there is no question from his perspective as to whether FIO or GAO should 

conduct the study. He said that FIO can not recommend that GAO do a study because FIO is a 

federal agency, and Congress must recommend or request GAO to do a study. If discussion is 

being opened to have GAO do a study, then Congress should be approached rather than asking 

FIO to make a request of GAO.

Mr. Falzon responded that he was attempting to address the perception that there was relative 

unanimity among the subcommittee with doing the work, but disagreement with how the work 

should get done. Mr. Falzon also noted Mr. Birnbaum’s concern that any proposal to modify the 

“how” would delay moving forward with the recommendation, and said his proposal was intended 

to navigate to a conclusion that would allow the recommendation to move forward and vote to 

have the analysis done, while leaving flexibility as to how it gets done. He said that it does create 

accountability with FIO determining how to perform the analysis, as opposed to conducting the 

analysis itself.

Mr. Heller expressed opposition to Mr. Falzon’s proposed revision, because he said it creates some 

confusion. He added that the proposal could also allow FIO to hire a third-party firm to conduct a 

study, which would not address some of the other underlying concerns with possibilities of bias or 

a lack of credibility. He suggested it would be clearer to reference having a study conducted by a 
federal agency, but noted that he would still not be in favor of an amendment. 

Mr. Falzon requested feedback from members who opposed the initial recommendation on 

whether the proposed amended language would address their concerns, as he intended it to serve 

as a potential compromise to gain support in moving forward with the recommendation.

Mr. Thresher proposed voting on the current motion as worded. 

Chairman Glaser proposed using the current language but adding the word “insurance” for clarity 

to see if the motion passes and fails, and suggested that if the motion failed, the FACI could revisit 

the recommendation in December with different language.

Mr. Thresher confirmed he would support voting on inserting the word insurance, but would 

maintain the existing language regarding how the study is performed. 

Mr. Birnbaum made a motion to amend the motion on the floor and insert the word “insurance” 

after “private passenger auto” and “insurance” after “residential property” 

Chairman Glaser called for a voice vote on the amendment. The motion to amend passed by voice 

vote. 

Due to passage of the amendment, the motion on the floor read: 

FACI recommends that the Federal Insurance Office conduct analyses of the presence of 

disparate impact or proxy discrimination against protected classes in the sale of private 

passenger auto insurance and residential property insurance to consumers and business 

owners insurance to small businesses. 

Chairman Glaser called for a voice vote on the motion. The results of a voice vote on the motion 

were unclear. Ms. Baldwin conducted a roll call vote. 

During the vote, Mr. Crabb asked whether proxy votes were permitted. Chairman Glaser 

confirmed that prior to the meeting he verified that proxies are permitted under the bylaws. 

During the vote, Mr. Stolfi requested that FIO coordinate with the NAIC and states on any work 

that is done for the data collection analysis.

In Favor: Andersen, Bach (by proxy of Kochenburger), Birnbaum, Dwyer, Falzon, 

Glaser, Heller, Kochenburger, Schmidt, Stolfi, Ward 

Opposed: Branch, Crabb, Keiser, Kelleher, McGovern, Thresher, Wheeler (by proxy of 

Glaser)

Abstentions: None 
Motion failed (11-7-0).

New Business and Closing Remarks

No new business was presented. 

Chairman Glaser announced that the final FACI meeting of the year would be held on December 

3. The International Subcommittee will lead discussion on its work. 

Chairman Glaser confirmed that 2021 meeting dates are under consideration, and members would 

receive an email in the near future requesting availability for 2021.

At 4:37 pm, Chairman Glaser concluded the meeting. 

I hereby certify these minutes of the September 29, 2020 Federal Advisory Committee on 

Insurance public meeting are true and correct to the best of my knowledge. 

_________________________ 

Dan Glaser

Chair