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Regulation and Compliance > State Regulation

Insurers Weigh In On Market Conduct

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Insurance legislators now are reviewing comments before a new round of drafting that could result in a market conduct law that would be a framework for regulation.

The National Conference of Insurance Legislators, Albany, N.Y., is in the process of developing a model law, The Market Conduct Surveillance model act.

Insurers offered comments on issues such as domestic deference, due process and confidentiality Jan. 16 following an industry gathering.

In a joint trade group letter, insurers recommended removing a domestic deference section until the issue could be better examined.

Due process for insurers who believe a commissioners action extends beyond the bounds of regulatory authority is a point insurers say they conceptually support. However, the use of arbitration to ensure due process is a remedy several trade groups still are vetting before members, they say.

Insurers also offered language that they say would ensure confidentiality of company information so that it would be considered “confidential by law and privileged” and “shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action.”

Language in the recommendations offered by insurers encompasses a simple concept of domestic deference that allows a state, if it chooses, to accept the market conduct findings of an insurers state of domicile, says Linda Lanam, vice president-annuities with the American Council of Life Insurers, Washington.

But more work is needed to determine how to coordinate examinations in which a nondomiciliary state, rather than simply accepting the work of a state of domicile, wishes to participate in the exam or to examine compliance with laws or regulations that may differ significantly from domiciliary states, she adds.

As states adopt the model, the wording providing for optional domestic deference will allow life insurers to encourage states to take advantage of the option for life insurers, whose business is more national than state-specific in scope, she explains.

Lanam says the inclusion of definitions created and offered by insurers is important for ensuring uniformity if the model is enacted in a state.

Creation of definitions is important, concurs Scott Cipinko, executive director of the Life Insurers Council, Atlanta. The reason, he explains, is that there can be different understandings for a term and if a term is defined in a drafting note, that note might be omitted by some state legislatures.

The goal is to create a new market conduct structure where there is broad consensus, says Don Cleasby, assistant vice president and assistant general council with the Property Casualty Insurers Association of America, Des Plaines, Ill.

On the issue of domestic deference, Cleasby says it is less clear if it would work for p-c companies because of the differences in lines of business and geography.

Another area of concern he cites is the referencing of models of the National Association of Insurance Commissioners in the NCOIL model. NAIC work products such as the Market Analysis Handbook are living documents and automatically enacting changes could be delegating responsibilities of state insurance departments to the NAIC, Cleasby adds.

The inclusion of an arbitration provision is something the National Association of Mutual Insurance Companies, Indianapolis, supports, says Dave Reddick, market regulation manager. Its use is not designed to be preemptive but to protect companies from a “fishing expedition” during a market conduct review, he explains.

Uniformity and consistency are important goals to achieve in any market conduct model effort, says Laura Kersey, assistant vice president-Northeast region, with the American Insurance Association, Washington.

Additionally, if a model is to be comprehensive, it should include a due process provision, says Ralph Scott, director of state services with Blue Cross Blue Shield Association, Washington.

If the model is adopted in a number of states and there are more uniform standards, then there might be more comfort with the issue of domestic deference, Scott adds.

The NCOIL model is a compromise that will provide a good statutory framework, says Kevin Hennosy, publisher of, Kansas City, Mo.

But on the issue of confidentiality, Hennosy says it is important that any provision not create a whole new area of confidentiality and privilege for company documents.

Comments filed by Birny Birnbaum, executive director for the Center for Economic Justice, Austin, Texas, Jan. 20, oppose domestic deference. He says there is no connection between market conduct behavior of an insurer and the insurers state of domicile.

He adds that there are dangers tied to the concept, including political pressure from a domestic insurer.

“Market regulation activities must be driven by market analysis,” Birnbaum says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 23, 2004. Copyright 2004 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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