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Regulation and Compliance > State Regulation

Industry Searching For Best Path To Market Conduct Exam Efficiency

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Industry Searching For Best Path To Market Conduct Exam Efficiency


New Orleans

Everyone in the insurance industry seems to agree that state regulators should be more efficient at assessing insurers sales and marketing practices. But speakers who addressed the issue here at the National Association of Insurance Commissioners summer meeting disagreed about the best ways to increase efficiency.

Industry representatives asked the Kansas City, Mo.-based association to encourage states to go back to basics.

When regulators are talking about “big sky” issues, they should remember to look at the ground once in a while and consider small, practical ways to make the exams more efficient, according to Don Cleasby, assistant general counsel with the National Association of Independent Insurers, Des Plaines, Ill.

Lenore Marema, a vice president at the Alliance of American Insurers, Downers Grove, Ill., said a step as simple as giving examiners better training could make a big difference.

Industry representatives also emphasized the need for greater uniformity in states exam policies, and efforts to coordinate exams on a multistate basis.

The American Council of Life Insurers, Washington, would like to see state regulators increase uniformity by making better use of the Market Conduct Examiners Handbook, according to Bryan Cox, ACLIs director of state relations. The handbook is a “well-thought-out document,” he said.

Ohio Director Lee Covington said there is a need for more targeted market conduct examinations. He said general data collected from an NAIC exam database was used by the department to cull information on Ohio companies.

The information indicated that, as ranked by premium, of the top 70 life companies, representing 83% of the Ohio market, 25 had not been examined in the past four years.

Of the top 70 property-casualty companies, representing 75.7% of the Ohio market, 25 had not been examined during the four years.

Covington said he believes that the data points generally to the need for more targeted market conduct exams.

He added that conducting exams by issue might be more efficient than conducting a company exam. For example, he said that in response to consumer concerns over health claims payments, the Ohio department pulled 10.8 million claims that resulted in fines for 7 health insurers.

Some regulators spoke of giving multistate regulatory zones the ability to conduct exams for many states at the same time, to eliminate the problem of insurers facing demands for the same information from 50 states.

“A zone concept creates efficient oversight,” said Nebraska Insurance Director Tim Wagner.

A “zone system can really bring rationality and uniformity to a system,” Cox agreed.

But states will have to move beyond protecting their turf or “doing their own thing” to make a zone approach work, Wagner said.

Breaking the barriers down could be difficult because states differ greatly in terms of their geography, their business climate and their public policy issues, said Cynthia Amann, a Missouri regulator.

Marema questioned whether it is really possible to achieve market conduct improvement goals on a countrywide basis.

“Does your examination staff feel comfortable that local issues are being addressed?” Marema asked. “If they dont feel that local issues are being addressed, it wont work.”

Brad Connor, another Missouri regulator, said he worried that regulators in an insurers home state would face extra political pressure when they conducted a zone exam.

But the exam system could also suffer if examiners from one state faced too little pressure while examining insurers in other states, Wagner said.

When examiners go out of state, they should not “raise Cain,” Wagner said, but they should still be accountable for how they conduct the exam.

Other participants at the session suggested a variety of other ideas for improving the exam process.

Brent Kabler, a research supervisor with the Missouri department, said he has already developed a statistical model that can determine with 75% accuracy which insurers are most likely to emerge from market conduct exams with fines.

He recommended that a team develop similar models for other states.

The team should identify the most useful data, improve any deficiencies in the data, create statistical models for predicting problems, and find a user-friendly way to give the models and the data to state insurance regulators, Kabler said.

Birny Birnbaum, executive director of the Center for Economic Justice in Austin, Texas, said insurance regulators should ensure that market conduct examiners have roughly the same funding as financial examiners.

“Are those resources even in the ballpark?” Birnbaum asked.

Some regulators and industry representatives have proposed that states speed up the exam process by giving legal protection to insurers that audit their own market conduct and correct their problems.

Birnbaum said he opposed the concept of creating a “self-audit” privilege.

Reproduced from National Underwriter Life & Health/Financial Services Edition, June 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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