NU Online News Service, Nov. 4, 2003, 7:33 p.m. EST – Debate about a proposed market conduct model law is opening up a discussion about how to balance consumer protection, state regulatory authority and burdens on insurers.

State insurance legislators now are fine-tuning a draft of the Market Conduct Surveillance Model Law, which is being developed by the National Conference of Insurance Legislators, Albany, N.Y.

The model will receive further discussion at NCOIL’s annual meeting in Santa Fe, N.M., which runs from Nov. 20 to Nov. 23.

UnumProvident Corp., Portland, Maine, is one of the organizations that have commented on the draft model.

The company says uniformity is important. It reports that, because of public allegations, it has had as many as 14 states conducting simultaneous market conduct exams of its companies. Recently, the company adds, three of its domestic regulators have announced that they will conduct a coordinated multistate market conduct examination and that a total of 42 states will participate.

UnumProvident contends that examiners are interpreting “access” to include information that normally would be covered by the attorney-client privilege.

Another topic UnumProvident raises is the use of third-party contractors. UnumProvident maintains that use of outside contractors is leading to an “exponential” increase in costs. In one case, examination fees exceeded $1 million for a single state exam, UnumProvident says.

Trade groups also are talking about the cost of contract examiners. The Life Insurers Council, Atlanta, is one of several trade organizations that urged that the NCOIL model law include tighter contractor cost controls.

The LIC recommends that there be a requirement for regulators to solicit bids, according to LIC Executive Director Scott Cipinko. The LIC, like other industry trade groups, also wants the model to include provisions for an appeals process.

The American Council of Life Insurers, Washington, suggests that the purpose of the model should be to establish a state-of-domicile approach, using market analysis for conducting targeted exams that are coordinated among states.

The model also should include a provision that would let a state where a company has significant market share handle market conduct activities if the state of domicile does not have the resources to perform that function, the ACLI says.

And, according to the ACLI, participation must be limited to those states in which the insurer has a significant market share.

In comments during a discussion about the model, Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, emphasized that market analysis is essential for properly regulating the marketplace.

The collection and analysis of data would enable a commissioner to target examinations and market conduct efforts, Birnbaum said.

Birnbaum said commissioners should perform a thorough market conduct analysis but should not have other, undue restrictions placed upon them.

The National Association of Insurance Commissioners, Kansas City, Mo., also is weighing in on the model, expressing concern that individual state legislatures could modify details of the model and delay uniform standards and procedures.

Domiciliary state deference is a form of “parochialism,” according to Kevin Hennosy, publisher of SpreadtheRisk.org, Kansas City, Mo.

Not every state is ready to meet the charge of fulfilling market conduct standards, Hennosy adds.