August 2021

Are you prepared for NAIC’s proposed Line of Business Granularity rules?

By Tim Garza, Director, Insurance Strategy & Solutions.

Major changes to NAIC granularity rules are proposed to go into effect for Q1 2022. Every insurer needs to be prepared to recategorize their data sets. 

On March 16, 2021, the NAIC Blanks Working Group proposed new rules on Lines of Business (LOB) granularity on the P&C statutory filings. These changes will require insurers to adjust the way they report their lines of business on the Insurance Expense Exhibit (IEE), Underwriting Exhibits, and State Pages.

The proposal requires insurers to report at this new level of granularity starting in Q1 of 2022. Insurers have the opportunity to prepare their line of business data now so that these exhibits can be easily recategorized when the time comes.

New granularity rules could challenge infrastructure

The intent of these changes is to line up the granularity detail of the lines of business in P&C Insurance filing to match the Life/Fraternal annual statements. This in turn brings more uniformity across the type of schedule, but also within the schedules across the IEE, Underwriting Exhibits, and State Pages.

As a result of the change, the categorizations are expanding more than threefold. As an example, “Other Accident and Health”, Line 15 in the underwriting exhibits, is being replaced with 9 categories:

  • Vision
  • Dental
  • Disability Income
  • Medicare Supplement
  • Medicaid
  • Medicare
  • Long-Term care
  • Federal Employees
  • Other

Such a breakout may or may not be available in current infrastructure.

Another challenge is that not only does this data need to follow the new rules on a go-forward basis in 2022, but 2021 year end data will need to be restated the new way, as we roll forward into 2022.

Insurers will have difficulty doing this if they do not have their data sources broken out in this manner, or within the same system. Currently, this category data may lie in several different systems: an Excel spreadsheet, a policy administration system, a data lake, general ledger, or subledger. It could be that all sources are needed to get the categorizations right.

Life insurers face further granularity changes

There are other granularity changes on the horizon that will affect Life Insurers as well: On November 16, the BWG will meet again to consider adoption of 2021-11BWG. This will create more granular supplements for the Exhibit of Premiums and Losses, which will now be divided into 29 categories.

In addition, 2021-13BWG will split Premiums and Losses on the State Page. That means 29 categories, split out by each state, which has the potential to be a highly burdensome process for insurers to adjust to. 

Finally, 2021-14BWG will modify the Schedule H, which affects the Life annual statements. Each of these will require different categorizations of Premiums, Losses, LAE, commissions, and other underwriting revenues and expenses.

Stay agile in the face of regulatory change

The sooner insurers plan for this conversion, the easier it will be to navigate this major change in granularity rules. Data models will need to be changed. Data sourcing and capture may need to be adjusted or revamped. And finally, all of this data needs to be reconciled across systems and tied out.

Contact Duco to learn how our fast and flexible data integrity solution can empower you to drive forward your LOB recategorization project.