NCOIL Busy Drafting Conduct Oversight Language

By Jim Connolly

NU Online News Service, Oct. 9, 3:35 p.m.EDT?The National Conference of Insurance Legislators saidthey are hard at work working on model legislation that responds toa General Accounting Office call for the states to institute auniform system of market conduct standards and policing.

In a report released last Friday, the GAO recommended that amechanism be created for state legislatures and insurancedepartments to adopt and implement minimum market conductstandards.

Tim Tucker, director of state-federal affairs for the Albany,N.Y.-based NCOIL, said the legislators group supports the findingsin the GAO study and is seeking to meet that goal with a MarketConduct Surveillance Model Law.

The latest draft of that NCOIL model was released last Fridayand was scheduled for discussion.

The GAO report also recommends that the National Association ofInsurance Commissioners based in Kansas City, Mo., "give increasedpriority to identifying a common set of standards for a uniformmarket oversight program that will include all states."

The NAIC for its part has been working on streamlining marketconduct procedures for over two years.

The GAO report cited the broad number of ways that states aremonitoring market conduct activities of companies.

For instance, it cited NAIC data that indicates that in 2001, 15states did targeted examinations; four, comprehensive exams; and,22 did both.

A targeted exam looks at a particular aspect or problem relatedto market conduct issues while a comprehensive exam looks at all ofa company's market conduct activities.

The GAO report also found that of the nine states participatingin an NAIC market conduct pilot, with the exception of Californiaand Ohio, on-site examinations were performed on less than twopercent of the states' licensed companies in 2001.

The report found that market conduct examinations differedwidely. For example, of 25 companies, 19 had been examined at theiroffices a total of 106 times during a three-year period. Six hadbeen examined one or two times over the three-year period, andseven others had undergone three to five examinations.

But two companies of those responding to a GAO question had notbeen examined since 1997, and four others had not beenexamined.

The report said a lack of a consistent approach was slowing moreeffective market conduct oversight.

Mr. Tucker at NCOIL said a model law will help create moreuniformity.

Two points of concern expressed during a public hearing inSeptember on the NCOIL model are among the issues that wereaddressed in the latest draft.

Insurers had expressed concern over a provision establishing anassociation reviewer. They noted that the term was undefined andcreated the possibility of another layer of regulation.

In the draft the use of a reviewer with the title of associatemarket analyst is now limited to when a commissioner believes acompany's practices "create a substantial threat" to thepublic.

Additionally, the new draft states that an insurance departmentmust actively manage costs including costs associated withqualified contract examiners.

It also states that the department has responsibility to protectthe confidentiality of books and records used during market conductexaminations.

The GAO report bears out the need for improvement of statemarket conduct oversight, says Bruce Ferguson, senior vicepresident-state relations with the American Council of LifeInsurers, Washington.

Responding to a question, Mr. Ferguson said at this pointmeaningful market conduct changes have not been produced.

He noted that the fact that the GAO report does not referencefederal oversight does not mean that there is no interest. In fact,according to Mr. Ferguson, it could be quite the opposite. Thedocument's purpose was to understand market conduct regulationtoday, a base which could be used to decide if federal oversight isneeded in the future, he continued.

The NCOIL draft is a step toward a market conduct system thatwould also include best practices implemented by regulators,according to Mr. Ferguson.

Of the latest draft, he said language outlining what triggers amarket conduct exam should also reflect what mitigates the need forsuch an exam, such as participation in a self-regulatorysystem.

The issue of accountability for costs is positive, but should betaken a step further, he said. It should require regular itemizedbilling for costs, Mr. Ferguson added.

And, he said, the draft should include a due process provisionthat would allow an insurer to question a market conduct findingbefore it was publicly released.

The issue of due process was also raised by Don Cleasby,assistant general counsel and assistant vice president with theNational Association of Independent Insurers, Des Plaines, Ill.

It is important that insurers be able to establish their owncompliance systems rather than have a system mandated, Mr. Cleasbyadded.

The mandate that departments oversee costs related to anexamination is also an improvement, he said.

Mr. Connolly is senior editor with National UnderwriterLife-Health Edition