By

Atlanta

Efforts to streamline and update market conduct efforts may be state insurance regulators best response to any challenge to the relevancy of state insurance regulation, according to a consumer advocate.

During the spring meeting of the National Association of Insurance Commissioners here, regulators were told that they need to play their strong suit if they are going to counter arguments calling for federal regulation of insurance.

The creation of an interstate compact is a “tremendously misguided effort,” according to Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas. “An effective case for state regulation is not being made by trying to be more efficient. That is not going to happen.”

The reason for this, Birnbaum said during a NAIC consumer liaison meeting, is that “it points out the inefficiency of state regulation.”

The strength of state regulation, he continued, can be shown to best advantage by pointing to the “the efficiency and effectiveness of market conduct regulation.”

Birnbaum urged regulators to “make 2003 the year that NAIC makes the case for state insurance regulation.”

How? “Show that state insurance regulation is the best way to protect consumers,” he said.

That can be accomplished, Birnbaum said, if the NAIC takes action such as “to stop dragging its feet on small face amount problems.”

And, he said work needs to continue on market conduct analysis.

Iowa Insurance Commissioner Terri Vaughan, immediate past NAIC president, disagreed with Birnbaum. Vaughan championed and is spearheading the effort to establish an interstate compact that would create a single point of filing for life insurance products. The compact, she said, is a way to modernize state insurance regulation that is akin to building infrastructure in a village.

Even as Birnbaum was making his suggestion about market conduct to regulators, they were continuing their efforts to update market conduct systems.

Those efforts are occurring in a number of different areas.

The preliminary results of a data call for the life industry are now being analyzed by states and could be ready to be integrated into one set of data by the end of April, according to discussions at the spring meeting.

Life insurers submitted their responses to data requests at year-end 2002, and property-casualty insurers are currently in the process of submitting their own data.

Work continues on another phase of the market conduct effort, the market analysis guide, formerly called the “How-to” guide.

The goal is to deliver a final document this year, said Joel Ario, Oregon administrator and NAIC Secretary-Treasurer.

The focus will be on three areas–consumer complaints, items in the financial annual statement that could point to and target market conduct problems, and coordination of this effort–he explained.

During the discussion on the guide, which would alert insurance department staff to the market conduct tools that are available to them, Birnbaum said there should be a focus on the largest problems and not necessarily the largest companies.

What would be helpful, he continued, would be to see how a major problem such as the race-based premium issue was identified in order to pinpoint successes and failures.

His suggestions were called worthwhile by regulators but as Jann Goodpaster, an Oregon regulator, explained, additional work was a later phase in the project to be followed after the data gathered from industry was analyzed. The starting place, she said, is to look at consumer complaints, market share data and financial information in order to get states to start market conduct analysis.

Additionally, Goodpaster said that efforts to standardize naming conventions such as claims received so that they are the same in every state are proceeding apace. Work is done in the life and property-casualty areas and will start in the health area, she adds.

A suggestion by Birnbaum that underwriting and claims procedures be part of the market conduct exam process was considered possible by regulators. However, Kirk Yeager, a Colorado regulator, qualified that possibility by noting it would only be possible if trade secret and liability concerns could be worked out. This would require the joint efforts of regulators, insurers and consumer advocates, he said.

A discussion on the third part of the market conduct effort–reciprocity of market conduct work done by different departments–touched on the need for states to duplicate efforts of other states.

Representatives for insurers offered their opinions on the progress of the whole effort thus far.

Regulators need to identify what problems there are in the marketplace and then ask companies what data they have that can be helpful with that, said Linda Lanam, a representative of the American Council of Life Insurers, Washington. A random sampling of companies found that gathering the information for the data call required hundreds to thousands of man hours depending on the size of the company and the number of companies within a group.

There are some concerns among companies regarding cost, said Lenore Marema, a representative with the Alliance of American Insurers, Downers Grove, Ill. There needs to be more coordination of market conduct examinations, she continued, citing a company that had 17 examinations going on simultaneously.

Companies are saying that if the data actually accomplishes regulatory goals and is not just data-gathering, then it is a good thing, said Don Cleasby, a representative with the National Association of Independent Insurers, Des Plaines, Ill.

He added that companies are trying to track costs, which they say could conceivably run between $6 million and $7 million.

If a decision is made to look at underwriting and claims data, it could create problems in protecting trade secrets and other proprietary information, according to Cleasby.

The organization of the issues is better now, said Dave Reddick, a representative for the National Association of Mutual Insurance Companies, Indianapolis.

The intention of regulators to complete the How-to Guide by year-end is encouraging, said Laura Kersey, a representative with the American Insurance Association, Washington.


Reproduced from National Underwriter Edition, April 7, 2003. Copyright 2003 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.