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The road to efficient market conduct annual statements may have a few speed bumps, namely, confidentiality concerns and the amount of data needed to actually get the job done.

But regulators and insurers are currently talking out issues so that a smoother, more efficient market conduct oversight process can be developed by the National Association of Insurance Commissioners, Kansas City, Mo.

A pilot program among states is being considered to help determine how to better share data and a year-end goal of having a more permanent program in place is achievable, according to Sue Stead, assistant director of the office of investigative and licensing services with the Ohio insurance department. The pilot would be explored as an alternative to a national data collection program that has been discussed.

States that are expressing interest in participating in the pilot include: Arizona, California, Illinois, Maryland, Missouri, Ohio, Oregon and Wisconsin.

Stead, who is heading up the regulatory team examining the issue of market conduct annual statements says that the goal is to avoid duplicative market conduct examinations.

But one issue that is receiving a lot of discussion, she continues, is confidentiality concerns over collecting and housing data in a central location such as an NAIC depository.

Interviews suggest that although there may not be seamless confidentiality standards if information is shared among states, insurers feel more comfortable with states sharing information than with housing data in one place. Speaking of the possibility of class action litigation, an industry representative comments, “we’re afraid of giving away the keys to the candy store.”

Many states have confidentiality laws but they are not always consistent among states, Stead says.

Another issue that received a lot of discussion, according to Stead, is just how much data needs to be collected.

Insurers are arguing that regulators have enough data to detect problem companies.

Stead says that during a recent meeting, claims aging was one data source cited as a way of measuring market conduct. The measure looks at how long claims remain unpaid.

On the life side, the number of cancellations and nonrenewals and the number of replacements in relation to volume of new business was discussed, she adds.

Another means of determining market conduct outliers is to measure the number of complaints that a company receives directly, Stead explains.

A “How To” guide is also being looked at. The guide would detail how existing data could be more efficiently deployed.

The Missouri insurance department has released information on how it treats data.

Property-casualty trade groups are in the process of working to develop a “how to” approach, says Dave Reddick, market regulation manager with the National Association of Mutual Insurance Companies in Indianapolis.

In addition to the issue of confidentiality, according to Don Cleasby, assistant general counsel with the National Association of Independent Insurers in Des Plaines, Ill., there is the issue of sheer volume of information that companies would have to gather and regulators would have to receive.

Efforts should first be made to analyze the information that is currently available, he says. “The How To guide needs to catch up.”

The American Council of Life Insurers in Washington, favors “an improved market conduct examination system, one that is much more streamlined,” says Jack Dolan, an ACLI spokesman.

Lenore Marema, vice president-legal and regulatory affairs with the Alliance of American Insurers in Downers Grove, Ill., says that discussions have focused on better use of existing information such as complaint data and Insurance Regulatory Information Systems ratios.

Marema says that states get a “wealth of information” that could be used to create a consistent approach for analyzing companies. But if, for example, a market conduct annual statement for personal lines is implemented, Marema expressed concern that “another layer of data collection and regulation would be created on top of what they already do.”

Kevin Hennosy, chairman of SpreadtheRisk.org, Kansas City, Mo. says that a national overview works for financial analysis and could work for market conduct analysis.

On the issue of trial attorneys using data from a centralized data bank to sue insurers, Hennosy notes, “if there wasn’t a problem out there, these folks wouldn’t have to worry about frivolous lawsuits.”

In fact, he continues, “if a regulator catches it first, you might be kept out of court.”

In order for trial lawyers to use the data in a central spot effectively, they would have to parse it very specifically, he says. It would be far easier to get a market conduct report, Hennosy continues.

Insurers, according to Hennosy, are not the only ones who do not want to see the system change. Chief market conduct examiners are used to the current system, he adds.

The framework of the financial statement system could be used for the market conduct system that is being built, Hennosy says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, May 27 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.