Legislators Get Earful From Industry On Market Conduct System
Legislators listened to reasons why current market conduct oversight does not work and were offered suggestions for fixing the system.
The fixes called for include coordinating market conduct exams more efficiently, making the system effective as well as efficient, reining in contract examiners and using existing information to create a market conduct picture of a company.
Life, property-casualty and health trade groups as well as consumer advocates and regulators offered legislators representing the National Conference of Insurance Legislators, Albany, N.Y., input during a public hearing that preceded the start of the fall meeting of the National Association of Insurance Commissioners here.
The comments offered some candid assessments of the current state of market conduct oversight of insurers as well as the industry itself. Speakers also urged legislators to work with regulators at the NAIC to create a strong state market conduct system as the Market Conduct Surveillance model law takes shape.
Indeed, even as the NAIC got ready to continue its multifaceted initiative that includes a data call project, development of a “How To” guide that would enable regulators to make better market conduct choices and a program of collaboration among states, criticism was being leveled at regulators.
At one point, Rep. Brian Kennedy of Rhode Island, an NCOIL panel member, questioned Joel Ario, who is NAIC secretary treasurer and Oregon administrator. Ario is overseeing the NAIC market conduct work. Kennedy wanted to know if regulators efforts were being driven by a fear that their market conduct responsibilities would be taken over by the federal government.
“The reason why more resources are being put into this today is because of the threat of federal regulation,” Ario agreed. The NAIC is like any other institution and is impacted by outside pressures, he said. “To be honest, I dont think wed be doing the right thing unless we had our feet held to the fire,” Ario added.
However, that impetus has produced a lot of good initiatives, he said. For instance, he said the better use of data is the starting point being used by regulators to create a good market conduct analysis program. Additionally, he said, advances are being made in collaboration among states.
He cautioned against “enshrining” too much in law because of different concerns among the states. For example, Ario said that terrorism exclusions would be treated differently in New York than in a Midwestern state.
Cost was an issue that came up several times during testimony.
The difficult year that life insurers have had makes it all the more necessary for legislators to develop efficient, low-cost, market conduct practices, said Donald Walters, deputy director of the Insurance Marketplace Standards Association, Washington. “Our member companies are under severe pressure. It has been one of the weakest years in the history of the life insurance industry,” he added.
And yet, Walters continued, “very few practical results were put in place to improve market conduct exams.” One company, he continued, faced more than 200 exams in the past year, at “significant cost” to the company.
“An entrenched bureaucracy that doesnt want to change,” was a reason he cited for what he said was a lack of change. “Unless change is foisted on them through legislative mandates, Im not sure that change will come about.”
The value of a self-certification program such as IMSA needs to be realized, he said.
“The system is broken,” according to Scott Cipinko, executive director of the Life Insurers Council, Atlanta. Cipinko said there are no statutory requirements or statutory rates for examination work. There also should be an absolute right to appeal, he said, and regulators should have the right to adjust bills submitted by outside examination contractors.
Contractors present their bills directly to companies, and it would be helpful if state insurance departments had to sign the bill, according to Lenore Marema, vice president-legal and regulatory affairs with the Alliance of American Insurers, Downers Grove, Ill. In many cases, these bills are not detailed and there is no appeal process, she added.
Dave Reddick, market regulation manager with the National Association of Mutual Insurance Companies, Indianapolis, said specialized contracted services such as legal advice can cost a company hundreds of dollars an hour in billing.
In one case, he said, when a company questioned why it had been selected for a market conduct exam, it was told by a regulator that “it is your time in the barrel.”
Market conduct examinations are one regulatory tool and not necessarily the primary form of analysis, he added.
A properly crafted NCOIL model law could be another effective tool, according to Don Cleasby, assistant general counsel and assistant vice president with the National Association of Independent Insurers, Des Plaines, Ill. In a statute, changes would be more solid and more uniform, he said.
What both the property-casualty trade groups and Bruce Ferguson, senior vice president-state relations, with the American Council of Life Insurers, Washington, stressed was the need to remove a section regarding insurers compliance systems and procedures as well as references to an association reviewer, a program that raised concerns over creating another layer of regulation.
If industry members were concerned about efficiency, effective consumer protection was an issue raised by Birny Birnbaum, executive director with the Center for Economic Justice, Austin, Texas.
Regulators response to the vanishing premium and redlining issues, among others, necessitate a look at why the system is not more effective, he said. More market conduct data is needed and more public access to that information is also needed in order to make the system more effective, he maintained.
A national system of data analysis is needed rather than a state by state approach, said Kevin Hennosy, publisher of http://SpreadtheRisk.org, Kansas City, Mo. A strong conflict of interest statement in the model law is also needed to prevent contracts that create a regulatory conflict of interest, he continued.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 19, 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.