Brokers

Brokers Cheer NARAB Passage

The law streamlines the national licensing process for brokers, but it may take two years to be operational.
By: | January 26, 2015 • 4 min read

After many years of intense lobbying, insurance agents and brokers finally have a national licensing clearinghouse.

Legislation signed into law by President Obama on Jan. 12 as part of the extension of The Terrorism Risk Insurance Act (TRIA) established the National Association of Registered Agents and Brokers (NARAB II) to make it easier for brokers to sell insurance on a nationwide basis.

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NARAB II, commonly known as NARAB, was established as a permanent organization.

Proponents of NARAB, a nonprofit membership organization to be governed by state insurance commissioners and insurance market representatives, argued that the group will preserve the best of the state regulatory system while adding a more effective licensing system.

“NARAB means a much more efficient and streamlined licensing process for agents and brokers operating in multiple states,” said Brady Kelley, executive director of the National Association of Professional Surplus Lines Offices (NAPSLO).

“NARAB is a tremendous and effective reform while preserving the state-based regulatory system,” he said.

A National System

Keri Kish, NAPSLO’s director of government relations, added that currently its members, or any broker or agent, has to be licensed in their home state, but if they do business in other states they have to obtain a separate license in each of those states as well.

“There will still be stringent requirements to become a NARAB member. But once those requirements are met, it’s just a much more simple online, one-stop shop to get licensed nationally.” — Brady Kelley, executive director of the National Association of Professional Surplus Lines Offices

“With NARAB, what they’ll be able to do is get their license in their home state and then apply to NARAB,” said Kish. “If they’re approved for NARAB membership, then they would be able to operate on a national basis.”

Added Kish: “They would still have to pay the same fees so there’s not necessarily a reduction in fees they would pay to get the licenses, but it’s a huge reduction in the amount of time and ease of being able to operate on a national basis and not having to administer 50 separate licenses.”

Kelley noted that if the agent meets the NARAB membership criteria, they will be able to log onto the national system, meet the qualifications, submit a background check and receive a national license.

“There will still be stringent requirements to become a NARAB member,” Kelley added. “But once those requirements are met, it’s just a much more simple online, one-stop shop to get licensed nationally.”

John Prible, Washington, D.C.-based vice president of federal government affairs for the Independent Insurance Agents & Brokers of America (IIABA), said NARAB will help companies by increasing their distribution force across the country and it will help consumers by increasing competition.

“But also a point that should not be lost, and it’s actually a very important point, is that now more than ever consumers will not be tied to one location,” Prible said.

“People move around, they move from state to state, people buy second homes in different states and they might have businesses in other states as well. What this will allow them to do is to continue to rely on their trusted insurance agent no matter where their business or property is.

“So we anticipate that NARAB probably won’t go live for about two years. We want to make sure we get it right.” — John Prible, vice president of federal government affairs, Independent Insurance Agents & Brokers of America

“That agent or broker will be able to utilize NARAB in order to operate across state lines without having to get 50-plus different licenses from the various states in which they operate.”

Increased Competition

NARAB is expected to increase competition among agents and brokers nationwide.

“The important reason competition will be increased is because now there will be a greater number of agents and brokers that consumers can choose from,” said Prible.

“Consumers don’t just have to choose among the insurance brokers and agents in the place where they’ve moved or where they expand their small business across state lines, they can keep their current broker.

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“But if another agent comes in there and offers better service or better value, then they can move to them,” Prible said.

Joel Wood, senior vice president of government affairs for the Washington, D.C.-based Council of Insurance Agents and Brokers (CIAB), noted that “for all the histrionics over state-versus-federal aspects of the NARAB discussion, the reality is that NARAB is simply an administrative mechanism to facilitate multi-state licensure.

“It is a red-tape cutter that will save significant costs for agencies and brokers large and small,” Wood said. “I know of many small firms who employ full-time staff just to maintain all their firm’s non-resident licenses.”

IIABA’s Prible stressed that NARAB will not be up and running overnight.

“The single most important thing that we’re trying to tell our members right now is that even though we’ve been working on this for the better part of a decade and we’ve finally crossed the finish line, this is not just a switch that’s going to be flipped,” Prible said.

“The president is going to have to appoint a board of directors,” Prible said. “This board will have to meet and develop the bylaws for exactly how NARAB is going to work. So we anticipate that NARAB probably won’t go live for about two years. We want to make sure we get it right.”

Steve Yahn was a freelance writer based in New York. He had more than 40 years of financial reporting and editing experience. Comments can be directed to [email protected]

Cyber Liability

Fresh Worries for Boards of Directors

New cyber security regulations increase exposure for directors and officers at financial institutions.
By: | June 1, 2017 • 6 min read

Boards of directors could face a fresh wave of directors and officers (D&O) claims following the introduction of tough new cybersecurity rules for financial institutions by The New York State Department of Financial Services (DFS).

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Prompted by recent high profile cyber attacks on JPMorgan Chase, Sony, Target, and others, the state regulations are the first of their kind and went into effect on March 1.

The new rules require banks, insurers and other financial institutions to establish an enterprise-wide cybersecurity program and adopt a written policy that must be reviewed by the board and approved by a senior officer annually.

The regulation also requires the more than 3,000 financial services firms operating in the state to appoint a chief information security officer to oversee the program, to report possible breaches within 72 hours, and to ensure that third-party vendors meet the new standards.

Companies will have until September 1 to comply with most of the new requirements, and beginning February 15, 2018, they will have to submit an annual certification of compliance.

The responsibility for cybersecurity will now fall squarely on the board and senior management actively overseeing the entity’s overall program. Some experts fear that the D&O insurance market is far from prepared to absorb this risk.

“The new rules could raise compliance risks for financial institutions and, in turn, premiums and loss potential for D&O insurance underwriters,” warned Fitch Ratings in a statement. “If management and directors of financial institutions that experience future cyber incidents are subsequently found to be noncompliant with the New York regulations, then they will be more exposed to litigation that would be covered under professional liability policies.”

D&O Challenge

Judy Selby, managing director in BDO Consulting’s technology advisory services practice, said that while many directors and officers rely on a CISO to deal with cybersecurity, under the new rules the buck stops with the board.

“The common refrain I hear from directors and officers is ‘we have a great IT guy or CIO,’ and while it’s important to have them in place, as the board, they are ultimately responsible for cybersecurity oversight,” she said.

William Kelly, senior vice president, underwriting, Argo Pro

William Kelly, senior vice president, underwriting at Argo Pro, said that unknown cyber threats, untested policy language and developing case laws would all make it more difficult for the D&O market to respond accurately to any such new claims.

“Insurers will need to account for the increased exposures presented by these new regulations and charge appropriately for such added exposure,” he said.

Going forward, said Larry Hamilton, partner at Mayer Brown, D&O underwriters also need to scrutinize a company’s compliance with the regulations.

“To the extent that this risk was not adequately taken into account in the first place in the underwriting of in-force D&O policies, there could be unanticipated additional exposure for the D&O insurers,” he said.

Michelle Lopilato, Hub International’s director of cyber and technology solutions, added that some carriers may offer more coverage, while others may pull back.

“How the markets react will evolve as we see how involved the department becomes in investigating and fining financial institutions for noncompliance and its result on the balance sheet and dividends,” she said.

Christopher Keegan, senior managing director at Beecher Carlson, said that by setting a benchmark, the new rules would make it easier for claimants to make a case that the company had been negligent.

“If stock prices drop, then this makes it easier for class action lawyers to make their cases in D&O situations,” he said. “As a result, D&O carriers may see an uptick in cases against their insureds and an easier path for plaintiffs to show that the company did not meet its duty of care.”

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One area that regulators and plaintiffs might seize upon is the certification compliance requirement, according to Rob Yellen, executive vice president, D&O and fiduciary liability product leader, FINEX at Willis Towers Watson.

“A mere inaccuracy in a certification could result in criminal enforcement, in which case it would then become a boardroom issue,” he said.

A big grey area, however, said Shiraz Saeed, national practice leader for cyber risk at Starr Companies, is determining if a violation is a cyber or management liability issue in the first place.

“The complication arises when a company only has D&O coverage, but it doesn’t have a cyber policy and then they have to try and push all the claims down the D&O route, irrespective of their nature,” he said.

“Insurers, on their part, will need to account for the increased exposures presented by these new regulations and charge appropriately for such added exposure.” — William Kelly, senior vice president, underwriting, Argo Pro

Jim McCue, managing director at Aon’s financial services group, said many small and mid-size businesses may struggle to comply with the new rules in time.

“It’s going to be a steep learning curve and a lot of work in terms of preparedness and the implementation of a highly detailed cyber security program, risk assessment and response plan, all by September 2017,” he said.

The new regulation also has the potential to impact third parties including accounting, law, IT and even maintenance and repair firms who have access to a company’s information systems and personal data, said Keegan.

“That can include everyone from IT vendors to the people who maintain the building’s air conditioning,” he said.

New Models

Others have followed New York’s lead, with similar regulations being considered across federal, state and non-governmental regulators.

The National Association of Insurance Commissioners’ Cyber-security Taskforce has proposed an insurance data security model law that establishes exclusive standards for data security and investigation, and notification of a breach of data security for insurance providers.

Once enacted, each state would be free to adopt the new law, however, “our main concern is if regulators in different states start to adopt different standards from each other,” said Alex Hageli, director, personal lines policy at the Property Casualty Insurers Association of America.

“It would only serve to make compliance harder, increase the cost of burden on companies, and at the end of the day it doesn’t really help anybody.”

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Richard Morris, partner at law firm Herrick, Feinstein LLP, said companies need to review their current cybersecurity program with their chief technology officer or IT provider.

“Companies should assess whether their current technology budget is adequate and consider what investments will be required in 2017 to keep up with regulatory and market expectations,” he said. “They should also review and assess the adequacy of insurance policies with respect to coverages, deductibles and other limitations.”

Adam Hamm, former NAIC chair and MD of Protiviti’s risk and compliance practice, added: “With New York’s new cyber regulation, this is a sea change from where we were a couple of years ago and it’s soon going to become the new norm for regulating cyber security.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]