GAO Report Focuses On Market Conduct

The new draft addresses points that include use of an association reviewer, a term that had caused insurers concern because it was undefined and created the possibility of another layer of regulation.

The use of such a reviewer is now limited to when a commissioner believes a companys practices “creates a substantial threat” to the public.

Additionally, the new draft states that an insurance department must actively manage costs including costs associated with qualified contract examiners.

It also states that the department has responsibility to protect the confidentiality of books and records used during market conduct examinations.

The GAO report bears out the need for improvement of state market conduct oversight, says Bruce Ferguson, senior vice president-state relations with the American Council of Life Insurers, Washington. When asked if “meaningful” market conduct changes have been produced to date, Ferguson says the answer is “no.”

And, he adds, the fact that the GAO report does not reference federal oversight does not mean that there is no interest. In fact, according to Ferguson, it could be quite the opposite. The documents purpose was to understand market conduct regulation today, a base that could be used to decide if federal oversight is needed in the future, he continues.

The NCOIL draft is a step toward a market conduct system that would also include best practices implemented by regulators, according to Ferguson.

Of the latest draft, he says the part that addresses what triggers a market conduct exam should also reflect what mitigates the need for such an exam, such as participation in a self-regulatory system.

The issue of accountability for costs is positive but should be taken a step further, he says, and should require regular itemized billing for costs.

And, he says, the draft should include a due process provision that would allow an insurer to question a market conduct finding before it was publicly released.

The issue of due process was also raised by Don Cleasby, assistant general counsel and assistant vice president with the National Association of Independent Insurers, Des Plaines, Ill.

It is important that insurers be able to establish their own compliance systems rather than have a system mandated, Cleasby adds.

The mandate that departments oversee costs related to an examination is also an improvement, he says.

Scott Cipinko, executive director of the Life Insurers Council, Atlanta, says the model still doesnt resolve the issue of cost and accountability. He says the model should also include a binding arbitration clause that would give insurers redress if they disagreed with a departments actions.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 10, 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.