GAO Rep Offers NAIC Some Insight On Market Conduct
During the winter meeting of the National Association of Insurance Commissioners here, a representative of the federal General Accounting Office offered his understanding of how to create a strong market conduct system.
An effective market conduct system has 3 components, said Lawrence Cluff, assistant director-financial markets and community investment with the GAO, Washington. These are a functional and comprehensive market analysis system; targeted examinations for those companies identified through market analysis; and a routine review of a companys internal controls, according to Cluff.
State regulators are starting to take steps toward better market conduct oversight, he said.
A critical point, Cluff explained, is to understand the meaning of domestic deference, which he said means accountability rather than complete authority over other states.
The issue of domestic deference is one that insurers, regulators and legislators have been attempting to get a handle on as they create a market conduct system.
The third component, Cluff says, needs to be accomplished by regulators and not industry organizations such as the Insurance Marketplace Standards Association. While he commended IMSAs work, he added that an IMSA designation may be one factor a regulator would consider rather than a substitute for regulatory oversight.
Companies do not want additional oversight but “just need to read the papers to realize that in the world we live in today, people look at the way that a company does business. Getting caught doing something wrong costs more,” Cluff said.
Indeed, insurers have expressed general support for a streamlined market conduct system but also have said that any market conduct analysis should result in clear benefits that justify the expense of a data call.
During the meeting, Ohio regulator Sue Stead said an analysis of data to date suggests that problems are being detected that would not otherwise be caught by reviewing available filings. She cited examples of higher than average replacements for several life companies that had been detected because of the data call.
The first round of a data call for property-casualty insurers indicated that companies were having problems correctly submitting data that had been requested, according to regulators from several states.
For instance, in Illinois, 112 companies had problems with submitted data compared with 12 companies the year before.
Regulators also completed a first draft of a Market Analysis Handbook, a how-to guide for regulators to better develop uniform approaches to market conduct oversight.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 12, 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.