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As part of their goal to establish more effective, streamlined market conduct oversight, regulators are advancing projects such as greater coordination among states in preparing market conduct reports and the development of a market conduct annual statement.

Recently, regulators announced a market conduct reciprocity agreement between Kansas and Nebraska. A pilot joint market conduct exam is planned between the two states this fall. One point in the agreement that makes the joint effort possible is a confidential market regulation file on every domestic insurer the departments would retain.

Iowa and South Dakota have also said they intend to join Nebraska and Kansas.

Nebraska Director Tim Wagner says it is “a way to use resources efficiently and to create uniformity. This will help eliminate valid criticisms concerning redundancy. We need to fix the system.”

Wagner says he hopes this will be an effective approach for states to work together, far different from some previous multi-state market conduct exams that sparked criticism over efficiency.

Under the reciprocity agreement, each company domiciled in participating states would be examined every four years, he says. In general, the exam would be conducted by the domiciliary state, although that would not have to be the case, he adds.

However, he emphasizes that the reciprocity agreements are designed to encompass a broad number of states and not just those within a particular geographic zone. Participation in the agreement would not preclude a state with specific issues relating to a particular company from conducting a targeted market conduct exam if needed, he adds.

Oregon Director Joel Ario notes that there are efforts at the National Association of Insurance Commissioners to develop two or three “best practices” market conduct procedures, including reciprocity. They could become an addendum to the Market Conduct Examiners Handbook, he says.

In another development, a market conduct examination of a life carrier conducted jointly by Illinois, Ohio, Oregon and Nebraska is being finalized.

Even as states coordinate their resources for market conduct examinations, work is being done to create a template that would make certain company market conduct information readily available on an annual basis.

A template for the annual statement has been provided to regulators and work on it will continue in preparation for the summer meeting of the NAIC.

One market conduct annual statement approach that has been offered is a working document developed by MetLife.

The approach includes a series of interrogatories derived from the Market Conduct Examiners Handbook and experience, according to Ann Henstrand, a MetLife vice president.

The interrogatories would allow examiners to determine whether states have already examined certain technical areas and if further review is necessary, she explained to regulators.

However, Henstrand notes that the potential for duplication of efforts in market conduct annual statements and exams is a concern.

The interrogatories cover a number of areas. For example, they ask a company whether a specified area has been reviewed as part of a market conduct statement, a Securities and Exchange Commission or National Association of Securities Dealers examination or an Insurance Marketplace Standards Association assessment.

And they also ask if the company is an IMSA member and what was the last date of an IMSA assessment.

On privacy, they ask a company to provide information on whether there are procedures in place to reasonably control and safeguard the data collection, as well as use and disclosure of information gathered in connection with insurance transactions.

Among other questions are:

–Do you have policies and procedures designed to reasonably assure that customer needs are determined in connection with any recommendation to purchase products?

–Do you have policies and procedures in place to assure that HIV info is not used to discriminate?

During conversations over how market conduct policies should be shaped, regulators have said the confidentiality of data collected and stored will need to be ensured.

Linda Lanam, vice president and deputy general counsel with the American Council of Life Insurers, Washington, says ACLI is pleased with the direction market conduct work is taking and the effort to identify important issues as a market conduct annual statement is reviewed.

Although it is still early in the process, according to Lanam, “what we are looking for is a way to give regulators better information.”

It is important to use existing information and improve the quality of data they get, she continued.

In previous discussions, consumer representatives such as Deborah Goldberg, co-director of the Neighborhood Revitalization Project in Washington, have suggested there should be a way to see what is actually going on in the marketplace in addition to what is recorded in compliance procedures and documents.

Goldberg pointed out that some practices are difficult to track. As an example, she noted African-American homebuyers who do not have phone calls returned by agents and do not receive a quote.


Reproduced from National Underwriter Life & Health/Financial Services Edition, April 29, 2002. Copyright 2002 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.