Legislators Advised That Market Conduct Exams Need Fixing
Findings of a new survey, testimony of regulators and insurers, and a sprinkling of anecdotes hammered home the same point to legislators: market conduct examinations need fine-tuning.
A survey prepared by PricewaterhouseCoopers, Chicago, was presented and discussed at the recent summer meeting of the National Conference of Insurance Legislators, Albany, N.Y.
Legislators and regulators say they are trying to develop a new streamlining procedure to conserve both government and insurer resources.
The survey found that a difference in philosophy exists between market conduct examiners and insurers.
According to the survey, The Market Conduct Handbook, a regulatory guide for examiners, states that an examination is most effective if it focuses on general business practices rather than on random errors.
Approximately 18% of chief examiners and 15% of examiners-in-charge disagree with this statement, the survey found. Roughly 25% of insurers surveyed believe that state insurance departments do not conduct market conduct exams in the spirit of the handbook statement. (See sidebar on this for further findings.)
Scott Cipinko, executive director of the National Alliance of Life Companies in Rosemont, Ill., says the biggest threat to insurer solvency is overregulation and its cost. A targeted exam–one that looks into specific issues or problems–is an approach that makes sense, he adds.
In fact, the idea of targeted exams is one that insurers are keenly supporting in discussions with both legislators and regulators.
Cipinko says insurers bear the cost of a market conduct examination, but when a bank is examined by the Office of the Comptroller of the Currency, the bank does not foot the bill for the exam.
A spokesperson for the OCC explains that banks pay an assessment to the OCC, but that no separate fee is charged for an examination.
A targeted approach using an analytical model of looking at consumer complaint data that is already available to regulators is an approach that has “real potential,” says David Reddick, government affairs advocate with the National Association of Mutual Insurance Companies in Indianapolis.
For example, he adds, if a company increases its market share and complaints rise, that might suggest it does not have the proper claims procedures in place to handle the increased market share.