NU Online News Service, Jan. 23, 2004, 9:45 a.m. EST – Insurers are asking for the temporary removal of a domestic deference section from the proposed Market Conduct Surveillance model act.[@@]

The National Conference of Insurance Legislators, Albany, N.Y., the organization developing the model, should take the section out while insurers discuss whether a domestic deference provision will work now and whether the provision will work for all types of insurers, several insurance trade groups recommend in a joint letter.

The insurance trade groups’ draft of the market conduct model includes a simple domestic deference provision that would let regulators in a state where an insurer does business accept the market conduct findings of the regulators in an insurer’s state of domicile, says Linda Lanam, vice president-annuities with the American Council of Life Insurers, Washington, one of the groups that signed the letter to NCOIL.

But more work is needed to determine how to coordinate examinations in which a non-domiciliary state, rather than simply accepting the work of a state of domicile, wishes to participate in the exam or to examine compliance with laws and regulations which may differ significantly from the laws and regulations of the domiciliary state, Lanam says.

Lanam adds that including definitions written by insurers is important for ensuring uniformity.

Including good definitions in a model act is important because a term can be understood in more than one way, agrees Scott Cipinko, executive director of the Life Insurers Council, Atlanta.

The authors of a bill might try to bring clarity by defining a term in a drafting note, but some state legislatures might omit the drafting note, Cipinko says.

In addition to domestic deference, the joint letter talks about due process and confidentiality of company information.

The insurance groups say they can support the concept of providing due process for insurers that believe commissioners are acting beyond the bounds of regulatory authority. However, the groups say their members still are discussing the use of arbitration as a vehicle for ensuring due process.

In the section on confidentiality, the insurance groups propose language that they say would ensure confidentiality of company information. The proposed language says company information shall 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.”

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

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

Birny Birnbaum, executive director for the Center for Economic Justice, Austin, Texas, filed a comment opposing the concept of domestic deference. Birnbaum argues that there is no connection between the market conduct behavior of an insurer and the insurer’s state of domicile.

He adds that there are dangers tied to the concept, including the possibility that regulators in the state of domicile might face political pressure from a domestic insurer.

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