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Regulation and Compliance > State Regulation

NCOIL OKs Market Conduct Model Changes

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The National Conference of Insurance Legislators approved an amended list of suggested changes to a market conduct model surveillance law at its recent meeting here.

NCOIL approved its original model last winter and enlisted the support of the National Association of Insurance Commissioners.

But the regulators balked at a blanket endorsement and instead offered a list of recommended changes that many lawmakers felt diluted the intent of the original model by maintaining unlimited discretion in conducting market conduct exams.

After a spirited round of last-minute drafting conducted with the aid of industry representatives, lawmakers were presented with a series of recommended changes they approved contingent on NAIC approval in the coming weeks.

After some reluctance, the NAIC point man on market conduct reform, Oregon Administrator Joel Ario stated he would guarantee at least 45 (out of 54) votes for approving the amended document within the next few weeks.

NAIC President Ernst Csiszar and his NCOIL counterpart, Florida state Senator Steve Geller, have been ardent advocates of presenting a united front in the face of opposition from some elements of their organizations who feel too much was being compromised along the way to make it worth it.

Geller went so far as to say that opponents of the joint effort were really federal regulation advocates bent on proving that even the legislators and regulators could not agree on reform measures.

He said the current version of the so-called regulatory reform road map put forth under the aegis of Reps. Michael Oxley, R-Ohio, and Richard Baker, R-La., would have “a disastrous impact on state insurance regulation.”

“Oxley seems bent on undercutting state insurance regulation, and he has brought the NAIC and NCOIL closer together now than they have been in many years,” he said.

In what he only half-jokingly termed were carefully scripted remarks approved after arduous negotiations and drafting all week, Geller said the industry, while not supporting the latest draft, has agreed not to oppose it. And he also made clear that the complex issue of market conduct will require much more work in the future to satisfy all the parties who feel the current document remains inadequate to meet the task at hand.

Just what kind of support would come from the industry troubled some lawmakers.

Geller said the fact that no industry groups expressed outright opposition was important in that they could not support it outright without first checking with their members.

But Lenore Marema, vice president of the Property Casualty Insurers Association of America, took issue with Gellers implication that industry support would be forthcoming.

“At this point, I dont really know how our members will feel about this. And if worse comes to worse we will just write our own model or propose our own amendments to get the piece of legislation we feel is workable,” she said.

Issues regarding domestic deference, the scope of market conduct actions and self-evaluative privilege were some of the thorniest areas that parties reached a compromise on.

But the one area the parties could not agree on was how to deal with those sections of the model that refer to NAIC work products and the procedure to follow if those work products should change. Instead there will be 3 options in the model that legislatures will have to choose when adopting.

Industry wanted to make sure regulators were forced to hold an administrative hearing any time a material change was made through NAIC work products, while the regulators wanted to have to go through that process only if such a change would necessitate a change in statute or rulewhich is something they would have to do anyway.

Marema said the regulators proposal “leaves little or no incentive to create a fair and open process for amending its work products, and instead creates an incentive to use the referenced work product to change state law without the scrutiny and accountability of the legislative process.”

In regard to domestic deference, in which domiciliary states take on prime market conduct responsibilities, the proposed amendments give the commissioners more discretion in this regard in that they remove the “significant premium volume” requirement for acceptance of another states oversight. They also include references to more interstate collaboration as a first step to creating a more nationalized system of market conduct.

The regulators and lawmakers have been wrestling over the issue of just what kind of actions should trigger market conduct remedies. Industry would prefer a focus on general business practices and compliance activities, while the regulators want more discretion to ensure they could probe any practices that in their opinion cause significant consumer harm.

The regulators also attempted to water down those areas of the law that dealt with both the self-evaluative privilege and third-party best practices organizations. As to the latter, the revised amendment allows commissioners to take into account membership in such groups but deletes the requirement that participation be a mitigating factor when assessing fines.

Reproduced from National Underwriter Edition, July 22, 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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