The spotlight on effective market conduct procedures is intensifying as details of a new report issued by legislators become available.
The report by the National Conference of Insurance Legislators, Albany, N.Y., offers suggestions on an issue state insurance regulators have been tackling for over a year. It will be followed by a public hearing in Chicago on June 6.
Issued in time for a Congressional hearing in early May (see NU, May 12), the preliminary report, titled “The Path to Reform-The Evolution of Market Conduct Surveillance Regulation,” makes a number of recommendations. These include the development of a model market conduct law that could be brought before state legislatures; reliance on self-regulatory bodies such as the Insurance Marketplace Standards Association; mandatory dialogue between insurers compliance officers and market conduct regulators; and triggers for a market conduct examination.
Other recommendations made in the report include vesting a domiciliary state with primary responsibility for performing market conduct surveillance and enhancing the National Association of Insurance Commissioners national complaint database. (For a full text of the report, visit www.ncoil.org.)
Among the items that the NCOIL report recommends be included in a market conduct examination law are trigger points for a market conduct exam.
The report says a commissioner should be authorized to conduct an exam whenever necessary but “the statute should enumerate what should cause or conditions that would trigger an examination.”
Those triggers would encompass single insurer issues such as information from financial exams; complaint levels reflected in the national complaint database; or lack of participation in self-regulatory organizations or lack of independent assessment of compliance programs. It would also encompass industrywide issues such as indication of a common industry practice that violates state regulation or requires state regulatory attention.
NCOIL is seeking “uniformity and lack of duplication” in market conduct efforts, according to Susan Nolan, NCOIL deputy executive director.
Through self-policing and a required dialogue between compliance officers and regulators, problems can be averted before they become serious, says Tim Tucker, NCOILs director of state-federal affairs in Washington.
Birny Birnbaum, executive director for the Center for Economic Justice, Austin, Texas, and a funded consumer representative with the NAIC, had a different take, calling the report an “industry wish list.”
Birnbaum notes, for instance, the reports call for self-auditing and self-regulatory oversight. Other recommendations such as making the state of domicile the lead state for market conduct regulation are not backed up by minimum resource standards, he adds. The report also does not mention market conduct accreditation standards, according to Birnbaum.
Although he supports elements in the report that recommend, among other things, “identifying, assessing and prioritizing market conduct problems,” Birnbaum says details are not provided to explain how those elements would be achieved.
In fact, he says, the “gaping hole in the report,” is the lack of empirical evidence to support its recommendations. For example, he says the report does not suggest collecting zip code data or underwriting guidelines to make evaluations.
In order to prevent market conduct problems in the future, the report should have examined why regulators failed to detect problems such as vanishing premiums, race-based sales and claims settlement practices, Birnbaum says.
He says it is his conclusion that regulators missed some of these “glaring issues” because “they dont want to know about these market conduct problems.”