ry Trend nce ais Deloitte marque New York

ry Trend: nce ais, Deloitte marque, New York Life harett, Baker. Hostetler April Savoy, Acceptance I Maya Ewing, Allstate

Overview of Panel Discussion Topics 2

Overview of Panel Discussion Topics Topic Content Introduction Modern Insurance Regulatory Structure Person responsible All • • History Consumer Protection Andrew Mais Anthony Sharett Products Industries Intro to the “Sharing” Economy • Ride Sharing • Home Sharing • Legal & Regulatory Impacts April Savoy Usage-Based Insurance • Legal & Regulatory Impacts Maya Ewing Impacts of the DOL Rule • How has DOL rule impacted the market? Natalie Lamarque 3

Modern Insurance Regulatory Structure 4

Modern insurance regulatory structure History Late 1980 s to early 1990 s • US had fixed capital requirements for insurers • A string of large property-casualty company insolvencies occurred • In 1990, Congress issued report blaming ineffective state regulation in part for failures • Six life insurers failed in 1991 Regulatory response • State insurance commissioners introduced the risk-based capital (RBC) regime in early 1990 s • RBC limited the amount of risk a company could take Late 2000 s • Fiscal downturn caused global economic concern • US government assistance through Federal Reserve Bank and Department of the Treasury was provided to mitigate systemic risk and maintain integrity of financial system • Congress passed the Dodd Frank Act to reduce systemic risk Regulatory response • State insurance commissioners began the Solvency Modernization Initiative (SMI) in June 2008, before the worst of the downturn • Dodd-Frank created the Financial Stability Oversight Council (FSOC) to reduce systemic risk posed by financial services companies in the US • Similar action taken internationally 5

Modern insurance regulatory structure Consumer protection • FIO auto affordability/availability study still not published • NAIC released whitepaper on price optimization, many states have already prohibited the practice • State regulators have expressed interest in reviewing the use of big data and consumer privacy • IAIS has exposed draft issues paper on “conduct of business” risk; IAIS market conduct working group says “conduct of business risks may have prudential consequences. ” “The No. 1 thing we're going to focus on, it's going to be what we do best. We're going to squarely focus on protection of consumers and how to maintain our competitive market. ” –Missouri Insurance Director John M. Huff, NAIC President-elect Source: Thomas Harman, “New NAIC President Says NAIC Will Focus on Consumer Protection in 2016, ” Best. Wire, November 23, 2015 6

Modern insurance regulatory structure Principle-based reserving What is it? Who does it cover? When does it go into effect? What will it affect? • A replacement for the current formula-based reserving approach • Should more accurately reflect the true cost of the liability or obligations of an insurer • Allows flexibility to adapt reserve requirements to changing conditions • Intended for life and health insurers • Initially will cover life insurance • Expected to be developed for additional product lines over time • Takes effect January 1, 2017 • Will go into effect over three years and cover only new businesses • Currently adopted by states representing 85 % of total premium • Product pricing and mix • May reduce the need for XXX and AXXX captives • May require talent and information systems changes 7

Modern insurance regulatory structure Corporate Governance Provides a structure to promote regulatory oversight of insurer corporate governance Planned effective date is 2016 Numerous new disclosure items Insurers must report annually to regulators by June of each year Confidentiality is a concern 8

Modern insurance regulatory structure Cybersecurity and Privacy Cyber assessment tools Annual statement disclosures Changing examination protocols Individual state regulator action Heightened regulatory scrutiny and requirements ERM integration Cooperation and information sharing 9

The “Sharing” Economy 10

Sharing Exchanges: Ride Sharing and Home - Sharing General Impacts • Peer to Peer exchange services for short trips by car (Uber, Lyft) or short term housing rentals (Airbnb) do not fall neatly into traditional legal categories or frameworks. • A multi-billion-dollar industry • • • − According to Bloomberg, Uber reportedly has a $50 -billion-dollar valuation; Air. Bn. B valued at $25 billion. Generally, includes an online intermediary, a market for P 2 P services, and facilitates the exchange by lowering transaction costs. Nomenclature Changing from Sharing to Access Economy - Carpool vs. Jitney A “disruptive innovation” in insurance Exchanges have attempted to limit liability by arguing that they were “message boards” vs. “controlling agents. ” • TNCs argument is being • Rental exchanges explicitly • Both services have litigated in the courts. liability for use of its services mechanisms that allow you to and encourages users to be contact your provider directly, − Uber has been mindful of local laws. and allow some discretion in embroiled in a number of the selection of users, which is class action lawsuits also triggering suits alleging asserting drivers are unfair discrimination employees vs. Independent contractors entitled to benefits, fair wages and workers compensation. The key question is whether servicers have financial stake in the transaction or employment relationship with providers? 11

Legal & Regulatory Frameworks affecting the sharing economy Common Law • • TNCs – common carrier and livery law Home rentals – premises liability and landlord and tenant law − Balance contract law with public policy responsibilities of provider to consumer of goods (i. e. public safety, minimum housing standards, anti-discrimination laws, duty to warn of foreseeable hazards). Modern Law • • TNCs – common carrier and livery law Home rentals – premises liability and landlord and tenant law − Balance contract law with public policy responsibilities of provider to consumer of goods (i. e. public safety, minimum housing standards, anti-discrimination laws, duty to warn of foreseeable hazards). • • • Often governed by state and city regulation Variety of laws in different states and cities makes it difficult to run a nationwide sharing exchange. Ridesharing through TNCs − FL – 2010 - prohibits local regulation of TNCs − PA – bans TNCs, but Philadelphia granted a 2 -year experimental license in 2014 Short term home rentals − Zoning restrictions, health and fire code regulations, occupancy taxes. − Many short term rentals explicitly prohibited by local law or housing covenants Sharing economy compliance with legal frameworks spotty Some cities and states have attempted to create a separate regulatory framework for sharing exchanges, including minimum insurance requirements and regular inspections, driver background checks, vehicle registration, experimental licensing. 12

The Grey Area: Insurance Regulation • • • Insurance regulated primarily by individual states and territories vs. Federal government. Paul v. Virginia – 1869 – Insurance is not commerce under the Commerce Clause Mc. Carran- Ferguson Act – 1944 – Allows federal and states to regulate insurance together; clarifies that anti-trust laws do not apply to the business of insurance. Dodd – Frank Wall Street Reform and Consumer Protection Act – 2010 – Created reforms affecting insurance industry, including the Financial Stability Oversight Council (FSOC) o Designates certain nonbank financial companies “systemically Important Financial Institutions” (SIFIs). o FSOC has designated AIG, Prudential and Met. Life SIFIs, and subjected them to greater regulation. Met. Life successfully challenged that ruling this year (March, 2016). No wholesale federal regulation of P&C insurance to date – FIO office and NAIC association enables coordination and collaboration of laws that could be applied across multiple states and would facilitate interstate commerce. 13

Is the Sharing Economy Personal or Commercial Activity? Ride Sharing • Courts have found the routine and generally available conveyance of passengers for hire renders the vehicle a public or livery conveyance (Warren v. Royal Exch. Assur. Co. , 205 S. W. 2 d 744 (Mo. Ct. App. 1947). • Occasional or incidental conveyance of passengers may not trigger the clause (Pimper v. National Am. Fire Ins. Co, 296 N. W. 465 (Neb. 1941). • • Most personal auto insurance does not cover commercial activity via specific contract language. Similarly, unless specific insurance is provided by the personal carrier, coverage for a car under personal insurance will likely be excluded when a ride share app is on. Three coverage periods in ridesharing legislation o Period 1 – App on and waiting for a match o Period 2 – Match made, and driving to pick up passenger o Period 3 – Passenger enters the vehicle 14

Is the Sharing Economy Personal or Commercial Activity? CA state regulation forced ride share companies to provide insurance to ride share providers when app is on. • Ride sharing companies fought against this rule, previously arguing that the time between when the app is on and when the passenger is picked up should not be covered by commercial insurance. − Uber (2013) – Uber driver fatally strikes a 6 year old girl in California in period 1 (app on; not in route) − California legislature proposed a bill to require coverage when driver app on (periods 1 -3) − Uber pre-emptively amended its policy to provide coverage in period 2 -3; but only provided contingent coverage in Period 1) − Subsequent CA legislation has been proposed to resolve this issue. • California legislators opined that there is some benefit to the ridesharing company when the provider keeps their app on validates the need for commercial coverage to apply during that period. • Handling of Period 1 coverage still up for debate (full coverage by TNCs, contingent coverage, coverage up to lower limit than 1 million −NAIC Model Bill- 2015 – personal insurers provide coverage during period 1; TNCs provide state mandated primary coverage during periods 2 -3; during periods 2 -3 liability coverage of at least 1 million. § TNCs must provide a defense to claims while app on, even if accident happens in period 1. −Other state laws, each containing some form of variation, have been enacted in 39 of the 50 states. 15

Home-Sharing and Regulations Home-Sharing • Similar to auto insurance carriers, most personal homeowner’s insurance does not cover commercial activity via specific contract language • Airbnb first failed to provide any insurance coverage for providers despite the personal homeowner’s policy exclusions • Recently, Airbnb began offering a “host guarantee” with a limit of $1 million for property damage − Reimbursement policy if reported within 14 days of incident and Airbnb user is compliant with other terms and conditions of contract with Airbnb − Airbnb contracted with United Specialty Insurance Co. as an underwriter for that insurance offering − Now limits are $1 million per occurrence, 2 million per location and 10 million in aggregate if incident occurs during the scheduled stay booked through the company’s online portal Regulations • • Much less evolved Some states have enacted minimum insurance standards for owners offering short term rentals − MA $500 K − FL Bill o Home sharing exchanges must provide contingent coverage for primary homeowner insurance; o Homeowners must disclose insurance limits to renters; must have $1 million per occurrence; $2 million in aggregate 16

Usage-Based Insurance 17

What is Usage-based Insurance (“UBI”)? Usage-based Insurance Usage-based insurance (UBI)is a recent innovation by auto insurers that more closely aligns driving behaviors with premium rates for auto insurance. Telematics devices measure miles driven, time of day, travel location, rapid acceleration, hard breaking and hard cornering among other data points. How does it work? 1 Risk Assessment 2 Driver Improvement 3 Claims Management 4 Value-added services 18

Evolution of technology Where are we now? How is vehicle data used today? UBI Policy Traditional Policy vs. Telematics data has the potential to replace traditional rating as we learn how, when and how much vehicles are driven. 19

Product examples in the marketplace Products • Unique offering for target segments • Smartphone UBI • Engaging young drivers • Acquiring safe drivers with rapid risk assessment • Mainstream product • Value-added services 20

Why are companies doing UBI?

Insurer Benefits Overview of Benefits for Insurers • • • 1 More accurate risk assessment Reduce loss cost – self selection, behavior change, improved claim handling Value added services – increase product differentiation, deepen customer relationship increase retention Reduced loss costs • • 2 Commercial fleet experience 54% - 93% Enhanced Pricing Accuracy UBI insurers report an average of 2 - 5% points improvement in customer retention; one insurer claims a 40% improvement in retention of telematics customers. Providing new services to improve engagement • • 4 Behavior Change – Young driver experience 30% - 40% Retention (and customer satisfaction) • 3 Self Selection – Average Discounts 12% - 25% (Opportunity to subsidize cost of launch, generate revenue) Behavioral modification programs (teens, mature market, etc. ) Safety features (emergency response, roadside assistance, stolen vehicle recovery) Vehicle maintenance reporting Concierge services (door unlock, navigation, location services) Prepare for the future • • • Millennials now outnumber Baby Boomers Millennials are unique Companies must adapt 22

Consumer Benefits Overview of Benefits for Consumers • It’s easy to understand & It’s fair • Better claim experience • Promotes safer driving • Value added services 1 More premium control • Would Buy a UBI Policy (Interest or Maybe) − 88% Millennials − 74% All Others • Would Buy IF Premiums Didn’t Increase − 93% Millennials − 85% All Others • Millennials are enthusiastic because they’re believers – 72% think UBI offers a better way to calculate premiums 2 Safer roads & Driver coaching • Nearly 3, 400 people die each day from traffic-related accidents − #1 cause of death among those aged 15 -29 years − 3 out of 4 road deaths are among men − 63% are willing to stop speeding, maintain a safe driving distance and drive considerately 3 Enrich claims handling • • • Immediate notification has had tremendous results Granular data can assist in claim settlement Improve fraud prevention 23

What concerns are out there?

UBI Privacy Considerations • Data has been subpoenaed in trials in a few cases • Consumers’ concern is decreasing, especially among Millennials • Companies can preempt consumer concerns and limit exposure − Reduce data collection and storage periods − Limit or avoid GPS data collection − Be transparent about the data collected: what, how, why − Voluntary nature of UBI programs − Data de-identification (“anonymization”) 25

Impacts of the DOL Rule 26

Modern insurance regulatory structure US Department of Labor (DOL) Fiduciary rule • DOL rule creates a fiduciary standard and address conflicts of interest in providing retirement investment advice. • Intended to protect the public from “questionable retirement investment advice” • Certain compensation arrangements would be prohibited unless exempted • Final rule expected to be enacted before end of Obama administration; court challenges • Many in industry expect rule as proposed to pose significant operational, compliance and business challenges “Who knew DOL would be the most important insurance regulator? ” -Panelist at the November 2015 US/EU dialog 27

Headlines How has the DOL Rule impacted the market? • DOL’s final regulation changes the landscape in retirement market • Provides new criteria for determining whether recommendations will be fiduciary and provides new conditions and a new exemption for conflicted fiduciary recommendations. • Much easier to become a fiduciary adviser, even in marketing; Limited exceptions for non-fiduciary activity • DOL’s changes to existing exemptions and new Best Interest Contract (BIC) Exemption impose a “best interest” standard on IRA fiduciaries • Pathways for Proprietary products, commissions and variable compensation • Best Interest does not mean Cheapest/Best Product • IRAs are “ERISA-fied”-You can’t spell ERISA without “I R A” 28

Prongs of DOL Rule Compliance Is the Information Giver a Fiduciary? ü Is the information giver suggesting that someone take or refrain from taking an action? üDoes the information giver fall under: ü Hire Me Exception ü General Communications Exception ü Education Exception üIs the information giver communicating with an Independent Fiduciary? If Information Giver is a Fiduciary, then the DOL Rule requires compliance with all of the following: ü Prudent Expert Standard ü Impartial Conduct Standards ü Disclosure (written/web) ü Reasonable Compensation Requirements 29

Prongs of DOL Rule Compliance IRAs/Plans If IRA Product is a Fixed Annuity, 84 -24 is available as long as meet: ü Prudent Expert Standard ü Impartial Conduct Standards ü Disclosure (written) ü Reasonable Compensation Requirements IRAs If IRA Product is a Mutual Fund or VA or Indexed Annuity, BIC (Best Interest Contract Exemption) is available as long as meet: ü Prudent Expert Standard ü Impartial Conduct Standards ü Disclosure (written/web) ü Reasonable Compensation Requirements 30

Prongs of DOL Rule Compliance IRA Fixed Annuity Mutual Fund or Variable/ Indexed Annuity PTE 8424 BIC 31

Going Forward Where is the industry headed? • Effective date − Generally applicable April 10, 2017 − Transition relief through January 1, 2018 − Grandfathering • Additional DOL guidance − Commitment to addressing issues • Challenges to rule − Congress − Courts − Next administration 32

Questions? 33

Speaker Bios

Speaker Bios Andrew Mais April Savoy m m 203. 761. 3649 amais@Deloitte. com Andrew provides industry-leading thought leadership for various sectors of the financial services industry, with a particular focus on insurance regulation – state, federal, and international. Andrew also provides client support and subject matter expertise for both clients and practitioners. Andrew joined Deloitte in February 2011 from the New York State Insurance Department, where he was Director of Public Affairs and Research and part of the Department's senior leadership team through numerous changes, including health insurance reform and the financial downturn. Andrew graduated form Yale University and has a long service record both in industry and government. He has held elective and appointed office in Connecticut and New York, and served on various boards including the Maritime Aquarium of Norwalk, the American Red Cross, the Wilton Chamber of Commerce, and numerous others. 615. 844. 1331 asavoy@acceptance. com April Savoy is Senior Vice President and General Counsel at Acceptance Insurance. Acceptance is an insurer and exclusive agency retailer of non-standard automobile insurance and related products through 440 retail locations in 26 states. Acceptance Insurance is based in Nashville, Tennessee, and employees over 1, 400 employees nationwide. April is the chief legal and compliance officer for the enterprise, and her staff provides corporate, litigation, regulatory and compliance support to the business. April joined Acceptance Insurance in May, 2015. April served as a Vice President and Associate General Counsel at Nationwide Insurance from 2002 - 2015. In this role, she provided complex litigation, financial and board reporting as well as process and project management support to the organization. She was also the P&C Products and Service leader for the $22 billion company during her tenure. April was responsible for the product management and customer service business units as well as eight P&C, specialty, and supplemental accident and health insurance brands totaling $16. 2 B in annual revenue. 35

Speaker Bios Maya Ewing Natalie Lamarque m m 847. 402. 7045 maya. ewing@allstate. com Maya Ewing is Senior Counsel at Allstate Insurance Company in Northbrook, Illinois. In her current role, Ewing guides Allstate’s Florida companies’ business strategy, ensures sound compliance of government practices and fosters a healthy legal, legislative and regulatory environment. Ewing joined Allstate in 2002 and has held a variety of positions in Allstate’s Insurance Operations, Corporate Litigation and Corporate Law divisions, while successfully directing several key initiatives for the corporation. During her tenure at Allstate, Ewing has led a multitude of employment class action litigation and complex insurance business initiatives, including Allstate’s Drivewise® safe driving program. 212. 576. 7514 Natalie_Lamarque@newyorklife. com . Natalie joined New York Life Insurance Company, the largest mutual life insurance company in the United States and one of the largest life insurers in the world in 2014. In May 2016, Natalie assumed the role of Vice President in the Corporate Compliance Department as the Compliance Officer overseeing a team of over 50 compliance personnel. Her role includes oversight of the Company's Market Surveillance and Analytics Review, Agent Field Review (for both Registered and Non-Registered Representatives), Customer Complaints, Outside Business Activities/Doing Business As (OBA/DBA) Requirements, Business Conduct and Ethics, including company-wide Conflicts of Interest reviews, Cybersecurity, AML/OFAC, Regulatory Reporting (including SEC and FINRA reporting), Broker/Dealer and Investment Advisor compliance, and general Insurance compliance. She has been recognized externally by Inside Counsel magazine as one of 100 women ready to take on the role of General Counsel by 2017. 36

Speaker Bios Anthony M. Sharett m 614. 462. 4771 asharett@bakerlaw. com Determined to stay at the forefront of emerging trends in the class action litigation and financial services sectors, Anthony Sharett maintains a national commercial litigation practice, regularly defending financial institutions and insurance companies against regulatory actions and consumer-led litigation in individual and class action matters. He also advises financial services companies on compliance matters, identifying potential issues and preparing policies and procedures. Additionally, Anthony has experience representing franchisors and franchisees in litigation, regulatory, and termination proceedings. As a former attorney with the Ohio Department of Commerce, Anthony has extensive knowledge of the banking, mortgage, credit union, and specialty finance industries. Utilizing a comprehensive approach to counseling, paired with this experience as a former regulator, he understands the key issues that arise within these sectors to proactively assist clients prior to or during litigation or enforcement. Anthony is also a member of the firm's Diversity and Inclusion Committee and is co-leader of the Financial Services Industry team. 37