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Market Conduct Reform? Yes, But How?

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There is general agreement that market conduct oversight of insurance activities can be made better, but wrestling with the details continues to be the task at hand, according to interviews.

Toward that end, insurers, regulators, legislators and consumer advocates gathering this week for the winter meeting of the National Association of Insurance Commissioners will tackle the issue and discuss a model law that legislators say will establish good market conduct standards.

This is being driven by federal legislators and regulators who say action needs to be taken. The call for action was echoed recently in a report issued by the General Accounting Office.

Joel Ario, NAIC secretary-treasurer and Oregon insurance administrator, cites 3 pillars that are important to market conduct oversight: market analysis through the effective use of data, uniformity and collaboration among states.

Ario says the NAIC 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 in market analysis are making strides, but the idea still needs further testing, he adds.

Any market conduct reforms should retain a commissioners 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 a modified approach is evolving. Such an approach allows nondomiciliary states flexibility to take action on issues that a domestic state is not acting on, he continues.

Domestic deference is an issue that will receive more review as the National Conference of Insurance Legislators, Albany, N.Y., moves its Market Conduct Surveillance model law toward an anticipated adoption in February 2004, says Tim Tucker, NCOIL director of state-federal affairs.

Nancy Davenport, senior counsel and director, Northeast region, with the American Council of Life Insurers, Washington, says the NCOIL model is making good progress, but the issue of domestic deference still needs to be discussed. Questions such as whether a larger state would enact a model law with domestic deference need to be answered, she continues.

Also, Davenport says, definitions of terms such as complaint and significant premium volume are needed in order to ensure uniform market conduct treatment among states.

Of NAIC efforts, Linda Lanam, ACLI vice president-annuities, says that while there is general agreement market analysis should be part of market conduct reform, the benefits of the current data call project are not clear.

“What we see as market analysis doesnt necessarily lend itself to a standardized data call when it varies by state,” she adds.

Standardization is a good goal, she adds, but there needs to be more of an understanding of how those benchmarks in the data call were developed and what the problem is in the market.

One of the main concerns for small insurers, says Scott Cipinko, executive director of the Life Insurers Council, Atlanta, is that if companies need to meet certain market conduct standards, they should be able to set up their own compliance systems instead of having to accept one mandated by regulators.

And on the issue of contract examiners, insurance departments should review all bills submitted, he adds.

Don Cleasby, vice president and assistant general counsel with the National Association of Independent Insurers, Des Plaines, Ill., says a change in the NCOIL draft to allow a company to establish standards is an improvement over one set of standards that was originally in the model.

On the issue of the data call at the NAIC, Cleasby says information has been provided on the costs to insurers and regulators should give information showing the benefits of the data calls.

The current NCOIL draft has been honed down to areas such as market analysis that could help regulators, says Lenore Marema, vice president-legal and regulatory affairs with the Alliance of American Insurers, Downers Grove, Ill.

An alternative to mandatory domestic deference needs to be explored, she adds. For instance, she says, 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, she continues. “This is where the rubber meets the bottom line.”

The NAIC Market Analysis handbook is a good first step that will be fine-tuned over time, Marema says. It is important, she adds, that states make sure the handbook is not only on their radar screens but that they also implement recommendations.

What is important, says Dave Reddick, state affairs manager with the National Association of Mutual Insurance Companies, Indianapolis, when developing market conduct guidelines, is to establish a process where outliers are identified through market analysis, contact is made so that outliers have a chance to correct mistakes and market conduct exams are conducted if problems are not corrected. An exam should be a last resort, he continues.

Reproduced from National Underwriter Life & Health/Financial Services Edition, December 5, 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.


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