The NAIC is addressing the possibility of a central repository of state market conduct data in its main systems under a 2012 large-scale effort to beef up its market conduct and consumer protection profile, and make sure states are doing the same.
The initiative is seen as defensive, an effort to ensure that a major consumer protection scandal generates momentum for placing oversight for consumer compliance in the hands of the Consumer Financial Protection Bureau (CFPB). It was established under the Dodd-Frank Act.
The CFPB still has no director because Republicans, acting at the request of the banking industry, are seeking to rein in the power of the CFPB by making it come to the Congress for its budget. The insurance industry was able to escape oversight of its consumer protection activities by citing “strong” state consumer protections.
However, potential problems loom. For example, a provision of the DFA mandates that states impose the NAIC model law originally designed to protect seniors when they purchase or exchange annuity products. Under this provision of Dodd-Frank, states must adopt annuity suitability standards similar to those in in the NAIC model or lose its right to regulate products such as indexed annuities by 2013 unless a company adopts and implements practices on a nationwide basis that meets or exceeds the model suitability law requirements within five years of the model’s adoption by the NAIC. The model was originally adopted by the NAIC in 2003.
But legislation passed by the Florida House last week is running into problems in the state Senate. It would make Florida only the 20th state that would be in compliance with the DFA provision.
The provision in Dodd-Frank under the Harkin Amendment states that in order for annuities to remain exempt from securities law (not that the states lose their right to regulate), one of the following three must be met:
The annuity policy or contract is issued:
a. in a state that adopts the model suitability law by June 16, 2013.
b. by a company domiciled in a state that adopts the model suitability law by June 16, 2013; or,
c. by a company that adopts and implements practices on a nationwide basis that meets or exceeds the model suitability law requirements within five years of the Model’s adoption by the NAIC.
State regulators were said to be out in force to make sure insurance market conduct was not under the umbrella of any Bureau during the crafting of Dodd-Frank. Many consumer financial protection authorities, such as mortgage disclosures, were transferred to the CFPB on July 21, 2011.
The NAIC said that, in December, its Market Regulation and Consumer Affairs Committee sent a survey to state insurance departments to obtain additional information and create discussion around a number of market conduct topics, including “reporting of state market conduct data to NAIC systems,” and the most cost efficient way to evaluate the marketplace with the growing role of market analysis.
The scattered state enforcement data could then possibly come under the purview of the NAIC’s data collection efforts.
The Committee will also be tackling the subject of examination expenses and mandatory coordination of state examinations, according to a preliminary list of potential topics it identified.
Currently, of course, states conduct their own exams, unless their is a multistate sweep; they fine companies and share actions, suspensions or fines and other enforcement and rebating information via press releases, and/or their websites — but only if they wish. It is difficult to amass all the enforcement information, as reporters have tried.
Federal regulators of securities such as the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission keep a comprehensive database of enforcement actions on their website for public perusal.