NAIC Market Conduct Analysis Efforts Seem To Be Showing Results

By

New Orleans

Separate studies presented by both insurers and regulators suggest that efforts to develop a market conduct analysis program are paying off.

During the winter meeting of the National Association of Insurance Commissioners here two reports were discussed.

Regulators issued a Market Analysis Scorecard indicating that 51 jurisdictions have designated a market analysis coordinator within their insurance departments. A total of 49 states have completed a core complaint analysis and provided data to the NAICs market analysis working group on nationally significant companies. Two states, Montana and South Dakota, have not yet completed the core analysis or provided data on nationally significant companies.

During a discussion on the results, Joel Ario, Oregon administrator and NAIC vice president, said discussions with those two states indicate they intend to complete the analysis and provide data.

Regulators also reported that 48 states and the District of Columbia completed requirements of the market analysis checklist as adopted in the NAIC Market Analysis Handbook. Checklists on companies resulted in 45 being referred to the regulators for further action.

The focus on market analysis has helped reduce the total number of market conduct exams through December 2004 by 16% over the same 2003 time period, according to the NAIC.

Other findings in the NAIC Market Systems Participation Report included totals of market conduct exams tracked through its Exam Tracking System. Totals were as follows: 345 in 1999; 458 in 2000; 562 in 2001; 860 in 2002; 1,261 in 2003; and 1,019 in 2004 for a 6-year total of 4,505 exams.

The industry survey was conducted by the American Council of Life Insurers, the American Insurance Association, the Blue Cross and Blue Shield Association, the Insurance Marketplace Standards Association, the National Association of Mutual Insurance Companies, and the Property Casualty Insurers Association of America.

It looked at 192 market conduct exams reviewed and conducted in 35 states. Of the exams conducted, 86 were reported as targeted exams and 106 as comprehensive exams. Of the exams reported, 64 involved the use of outside contract examiners. The results pertain to market conduct examinations begun on or after Jan. 1, 2003.

The survey results found that one-third of the exams deviated from the NAIC uniformity standards. The report noted that while “regulators are striving to adhere to uniformity standards,” there were still deviations.

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.