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Regulation and Compliance > State Regulation

Opinion Diverges On Market Conduct

By Jim Connolly

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Recent industry discussions suggest that there is significant disparity over how to create a market conduct mechanism, a goal most support.

That disparity was highlighted both at a public hearing sponsored by the National Conference of Insurance Legislators, Albany, N.Y., and again during a discussion among regulators and insurers over how to proceed with a market conduct annual statement project currently being developed by the National Association of Insurance Commisisoners, Kansas City, Mo.

There is a “strong desire” on the part of trade groups to see NCOIL work in collaboration with the NAIC, says Tim Tucker, NCOIL director of state-federal affairs.

Whether or not a model market conduct law is developed by NCOIL is something legislators will need to discuss further and learn more about, he adds.

However, he did note that dialogue in Congress has suggested a need for action.

During the hearing, the American Council of Life Insurers, Washington, submitted testimony that said it would discuss the model law proposal with members. It also encouraged more immediate action such as encouraging insurer self-audits and using tools such as the NAIC Market Conduct Examiners Handbook.

ACLI said in its testimony that deficiencies in the current system that must be addressed include efforts to better coordinate multistate examinations or reciprocal acceptance of an examination done by another state.

ACLI also expressed reservations over vesting a companys domiciliary state with primary responsibility for market conduct oversight because of concerns ranging from variation in state laws and regulation on privacy of examination work papers to the limited staff available to conduct examinations.

Among the speakers at the NCOIL hearing was Nebraska Insurance Director Tim Wagner.

Wagner heads up an effort at the NAIC for states to collaborate and accept company examinations conducted by a state of domicile. To date, five states are participating in these collaborative arrangements.

Speaking of the possibility of a market conduct model law, a possibility noted by a just-released Insurance Legislators Foundation report, “The Path to Reform–The Evolution of Market Conduct Surveillance Regulation,” Wagner says that at this point, it is “premature” to start drafting a model.

He adds that more dialogue is needed at both the upcoming summer NAIC meeting that starts on June 21 and at the NCOIL summer meeting next month. ILF is NCOILs research arm.

Wagner adds that a periodic examination of a company is “a better tool” than targeted examinations resulting from consumer complaints.

Wagner maintains that the domestic regulator should be responsible for the market conduct oversight of insurers.

While there is a goal of getting 15 states to participate in reciprocity, he says that there are currently only five states participating.

“There are entrenched interests at the NAIC,” but a reciprocity agreement among interested states makes it possible to “go outside of the NAIC committee structure.” While he says that some regulators are entrenched, he notes that they are “in fact, a minority” who are protecting their own interests.

The collaborative agreement is entered into every year so that it is, in fact, “a living, breathing document,” he adds. That allows for flexibility where needed, he continues.

Periodic examinations conducted by a state of domicile is one way to approach regulation, according to Wagner. However, other states prefer a targeted approach and “a lot of states are asking why they need to conduct market conduct examinations at all.”

Insurers are also weighing in on a market conduct data analysis project that the NAIC is working on in conjunction with a market conduct annual statement.

Regulators want to repeat a data call, but insurers are saying that data should be analyzed before new data is collected.

The issue will be discussed more fully during the NAIC summer meeting from June 21-24.

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, says that extending the data call project another year is valuable because looking at data over time makes it easier to check for the quality of data collected.

To ensure the quality of the data, he said, it is necessary to have a two- to three-year data collection period rather than a six-month data call.

But, Linda Lanam, ACLI vice president and deputy general counsel, asked regulators, “How is it making regulation better? That is what we havent seen yet.” Later, she added, “we dont know what you are trying to get to” and whether it will create a clear improvement to regulators or the regulated.

Property-casualty insurers offered input on efforts at both NCOIL and at NAIC.

“We have no objections to NCOIL drafting a model if it is drafted in an appropriate way that has benefits identified in the report,” says Don Cleasby, assistant vice president and assistant general counsel with the National Association of Independent Insurers, Des Plaines, Ill.

On the issue of the NAIC data call, Cleasby said a decision on extending the data call should not be made until the regulators have gone through the process once.

One of the items in the report that would be beneficial is the development of self-evaluative procedures for companies, according to Dave Reddick, market regulation manager with the National Association of Mutual Insurance Companies, Indianapolis.

On the issue of developing a model, Reddick says that because of the differences in state laws on personal and commercial lines of business, a model law proposal needs to be studied more.

Reproduced from National Underwriter Edition, June 16, 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.

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