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A proposed market conduct model law is prompting a discussion on how to balance consumer protections, state regulatory authority, and costs and administrative burdens on insurers.

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

The model will be discussed further at NCOILs annual meeting in Santa Fe later this month.

UnumProvident, Portland, Maine, was one of a number of entities commenting on the draft model.

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

One of the “troubling” trends UnumProvident cites is the use of third-party contractors, which it maintains is leading to an “exponential” increase in costs. UnumProvident says that in its case, examination fees exceeded $1 million for a single state exam.

The company also is concerned that examiners are interpreting access to include information that it says would be covered normally by the attorney-client privilege.

Trade groups also are expressing concern over the cost of contract examiners. The Life Insurers Council, Atlanta, was just one of a number of trade organizations that urged tighter controls be put in the model.

LIC recommends that be a requirement to solicit all potential bids, says Scott Cipinko, LIC executive director. The recommendation also reflects other trade groups in that it calls for specificity of billed items as well as 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 should also include a provision that would allow states with significant market share of a company to conduct market conduct activities if a state of domicile does not have the resources to perform that function.

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 on the model, Birny Birnbaum, executive director for 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 says commissioners should perform a thorough market conduct analysis but, other than this requirement, should not have 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,” says Kevin Hennosy, publisher of SpreadtheRisk.org, Kansas City, Mo. And, he continues, not every state is ready to meet the charge of fulfilling market conduct standards.

Members of the National Association of Independent Insurers, Des Plaines, Ill., need clarification on the issue of domestic deference, says Don Cleasby, NAII assistant vice president and assistant general counsel.

Cleasby asks, “Can only a domestic state begin a market conduct exam?” And, “What happens if the state of domicile does not order an exam? May a non-domiciliary state,” he continues, “request that a domiciliary state investigate an issue which the domiciliary state has not included in its examination?”

The Alliance of American Insurers, Downers Grove, Ill., sees less of a need for a comprehensive model law, according to testimony submitted by Lenore Marema, Alliance vice president of legal and regulatory affairs.

Consideration should be given to points that include the possibility that provisions of the model would affect various parts of the insurance industry differently, she writes.

The Alliance testimony also asks if non-domestic states are bound just on the issues in the domestics exam.

Among the issues that concerns the National Association of Mutual Insurance Companies, Indianapolis, is the inclusion of a provision regarding insurers compliance systems and procedures, explains Dave Reddick, NAMIC state affairs manager.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 7, 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.