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Market Conduct Pilot's Cost Concerns Insurers

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Market Conduct Pilots Cost Concerns Insurers


A data collection pilot project that could help regulators target market conduct exams is still raising cost-benefit concerns among insurers.

Initial reaction to an interim meeting held in Chicago on Aug. 22-23 by the National Association of Insurance Commissioners, Kansas City, Mo., indicated that while the American Council of Life Insurers, Washington; Metropolitan Life Inc., New York; and property-casualty trade groups support the goals of the project, there is concern that costs will outweigh benefits.

The data call for life insurers will be made after the fall NAIC meeting, which will be held in New Orleans next week. The life insurance industry will report on data from Jan.-June 2002 with a year-end 2002 report anticipated and an analysis by regulators due out sometime in early 2003.

The property-casualty industry will begin data gathering from Jan.-June 2003 and will submit reports to all states in the pilot project by September 2003. A report will then be developed and presented by regulators by December 2003.

Discussions during the interim meeting suggest that target areas for the data call are replacements, claims and complaints, according to Linda Lanam, ACLI vice president and deputy general counsel.

The ACLI, according to Lanam, supports the goals project of using data to target outliers. On the issue of data, she continues, the ACLI has two points of interest.

The first point is that a request for data also used on a financial statement directly parallels information contained in the financial statement, Lanam says.

Consequently, it is a good thing that regulators are concentrating on the schedule F data in the financial statement, she continues.

If new information is required, there needs to be more discussion of the marketplace problem to be identified, she adds.

Regulators have indicated that they will be as flexible as possible in asking for data that companies keep and will try to avoid the need for companies to make major systems changes, according to Lanam.

Each state in the pilot program will issue the data call, and the presumption insurers are operating under is that the data provided will be protected as part of working papers of each states market conduct exam, Lanam says.

Insurers have noted, however, that there is not a lot of research available on this issue and that there is not a consistent opinion on the degree of protection afforded, she adds.

“Very real progress was made at the meeting,” says Ann Henstrand, a vice president of government affairs with MetLife Inc., New York.

The extension of the deadline to 90 days allows companies to prepare data but not pull IT resources from other projects, she says.

Henstrand also cites positive practical points such as putting spread sheets that companies will need to use on the NAIC Web site,, and designating a specific person at each participating insurance department as the contact on the pilot for that state.

For a company, like MetLife, according to Henstrand, the success of streamlining the market conduct exam process is important because it saves time, money and resources. Given its size, MetLife is the subject of a number of exams and requests can differ, increasing costs, she says.

In a survey of 63 companies conducted by a joint property-casualty trade group that includes the Alliance of American Insurers, Downers Grove, Ill.; the American Insurance Association, Washington; the National Association of Independent Insurers, Des Plaines, Ill.; and the National Association of Mutual Insurance Companies, Indianapolis; cost was found to be a major concern.

Responses from the joint groups survey found that the cost per company would range between $10,000 to $25,000, according to Lenore Marema, vice president–legal and regulatory affairs with the Alliance. The responses, according to Marema, did not vary by premium volume, so it is not a big company, small company issue.

What is important to companies, she continues, is that the cost to some roughly 800 P-C companies be justified by benefits such as focusing resources on targeted rather than on comprehensive exams.

The survey of 63 companies, conducted in early August, included results from 50 companies on cost and suggests that data gathering could cost 800 property-casualty companies approximately $16 million, according to Don Cleasby, NAII assistant general counsel.

Among some of the surveys other findings was that “the stretch on the IT staff would be very difficult for companies,” he says.

Indeed, the survey results pointed to this difficulty. It asked respondents if companies that are part of a group use the same data systems. Thirty of 50 companies responded that they were part of the same data system. Cleasby says that the 40% of companies that are not part of the same system have slightly or conceivably very different data systems, complicating data call efforts.

Several questions addressed the issue of whether companies retrieved information electronically, manually or through both means.

Although a decision was made not to include claims data in the data call, the survey includes information on claims.

For example, a question on claims information available found that 68.4% would retrieve information electronically, but 31.6% would use a combination of both electronic and manual retrieval.

When asked what kind of claims information is available, with multiple answers, an acceptable response, 57 of 63 companies said that information is available on the date a claim is made or opened; 38 on the date of a claims settlement; 54 on the date a draft or check was issued; and 55 on the date a claim file was closed.

When asked if companies track information on the number of claims closed without payment and the number of claims denied within certain time periods, companies, which could offer multiple answers, responded as follows: 19 tracked the information in a 0-30 day period; 19 within 31-60 days; 18 within 60-90 days; 18 within 91-180 days; 18 within 181-365 days; 17 in over 365 days; and 34 tracked none of the above or do not have claims aging data.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 2, 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.


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