Close Close

Portfolio > ETFs > Broad Market

Market Conduct Reform? Yes, But How?

Your article was successfully shared with the contacts you provided.

NU Online News Service, Dec. 2, 2003, 8:33 p.m. EST – Everyone agrees that insurance market conduct oversight could be better, but the insurance industry representatives, regulators, legislators and consumer advocates who are gathering this week for the winter meeting of the National Association of Insurance Commissioners, Kansas City, Mo., continue to wrestle with the details.[@@]

Federal regulators and members of Congress are calling for action on the market conduct issue, and a recent report issued by the General Accounting Office echoed that call.

Here are some comments on the market conduct issue from the participants in the debate:

- Joel Ario, NAIC secretary-treasurer and Oregon insurance administrator, lists market analysis through the effective use of data, uniformity and collaboration among states as the three pillars of market conduct oversight.

Ario says a market analysis handbook, a compilation of tools that regulators have been using to monitor market conduct, is now ready for use. Regulators’ efforts to use data calls to analyze market analysis are making strides, but the idea still needs further testing, he adds.

Any market conduct reforms should retain a commissioner’s authority to make a decision on a market conduct issue, Ario says.

On the issue of domestic deference, which allows the state where a company is domiciled to take the lead on market conduct matters, Ario says there is an evolution toward a modified approach.

The modified approach would give nondomiciliary states flexibility to take action on issues that a domestic state is not acting on, Ario says.

- Tim Tucker, director of state-federal affairs at the National Conference of Insurance Legislators, Albany, N.Y., says domestic deference is an issue that will receive more thorough review as NCOIL moves its Market Conduct Surveillance model law forward. Supporters of the model hope NCOIL will adopt it in February 2004.

- Nancy Davenport, a senior counsel at the American Council of Life Insurers, Washington, says that the NCOIL model is making good progress but that the issue of domestic deference still needs to be discussed.

Questions about topics such as whether a larger state would enact a model law that incorporates domestic deference need to be answered, Davenport says.

- Lenore Marema, vice president-legal and regulatory affairs with the Alliance of American Insurers, Downers Grove, Ill., says regulators should explore an alternative to mandatory domestic deference. She says, for example, that the emphasis could be on cooperation among states.

Companies should be required to meet standards but not told what systems they must implement to be in compliance, Marema adds.

“This is where the rubber meets the bottom line,” Marema says.

The American Insurance Association, Washington, and other property-casualty insurance trade groups recently compiled information about the cost of responding to the NAIC data call. The average cost for the 55 participating companies was between $10,000 and $25,000. One company spent $62,000.

- Scott Cipinko, executive director of the Life Insurers Council, Atlanta, says small insurers want to avoid the need to implement costly new compliance systems.

Small insurers also want to see insurance departments review all bills submitted by contract examiners, Cipinko says.

- Dave Reddick, state affairs manager with the National Association of Mutual Insurance Companies, Indianapolis, says that what is important when developing market conduct guidelines is to establish a process that identifies outliers through market analysis; makes contact, so that outliers have a chance to correct mistakes; and schedules market conduct exams only if problems are not corrected.

An exam should be a last resort, Reddick says.

- Kevin Hennosy, publisher of, Kansas City, Mo., says there should be a system that uses data to target in-depth analysis.

To contain costs, regulators should use a national approach to collecting the data rather than a state-by-state approach, Hennosy says.

- Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, says the goal for market conduct reform should be effectiveness and efficiency, in that order.

If the system becomes more effective and protects consumers, then efficiency for insurers will follow, Birnbaum says.