NAIC Market Conduct Analysis Efforts SEem to be showing results

Among the procedures identified by industry survey respondents were: the use of standardized data calls; processes for conducting exams, particularly pre-examination procedures and the use of the Handbook; as well as time frames set established in uniform procedures.

Other points cited in the industry survey results were the use of an information exchange system for advising companies of deficiencies/problems that include a specific statutory or regulatory basis; and communication of the basis for penalties, communicated enforcement procedures and policies.

Top areas of departure from the uniform standards include failure to identify items to be billed and billing procedures, and failure to provide time and cost estimates, as well as to provide a draft report within 60 days. Industry respondents said that failure to follow the NAIC standardized data call and the NAIC Market Conduct Examiners Handbook were among the top 10 concerns they had regarding deviations from uniform standards that the NAIC has developed.

“Our overall sense is that there has been real progress,” said Linda Lanam, vice president-annuities, with the ACLI, Washington.

It is difficult to say whether the number of exams reported in the survey is diminishing because it did not ask for specific dates, but rather, for a 2-year period starting on Jan. 1, 2003, she explained. So, in fact, the number of exams could be diminishing, according to Lanam.

The use of outside contractors to conduct examinations is sometimes necessary for specific components of an exam, Lanam said, but the industry is hopeful their use can be reduced.

Additionally, she said, the industry hopes that through better state collaboration, the need for so many examinations also will be reduced.

Lanam says the market conduct annual statement program appears to be working. But, she added, industry is hopeful that miscellaneous market conduct data calls that fall outside the scope of the program will be minimized because calls for information that range from individual calls to requests for information related to questions on broker compensation are all drawing off a companys same IT resources.

Two-thirds of the exams suggest that examiners are aware of and are using uniform exam procedures, says Lenore Marema, vice president-industry and regulatory affairs with the Property Casualty Insurers Association of America, Des Plaines, Ill. However, she noted that the survey suggests that areas such as standardizing the data call and making notice and timing of examinations more uniform still need improvement.

Marema also says that PCI disagrees with the collection and use of underwriting guidelines in market analysis. The Market Conduct Examiners Handbook should include tested techniques. It should be a handbook and not a “scrapbook,” she said.

If the market analysis is not done correctly, Marema said, problems will be shifted from the exam to a “new front-end system of analysis.”

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, told members of the Market Regulation and Consumer Affairs (D) Committee he was “incredibly disappointed” that regulators were pulling back from adopting underwriting guidelines into the handbook. He asked regulators if they had “the will” to add tools to the handbook to make it effective.

Regulators responded that it was more a matter of clarifying the wording before putting it in the handbook than a decision to leave it out.

Reproduced from National Underwriter Edition, December 16, 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.