GAO Offers Advice For NAIC Market Conduct Plan

By Jim Connolly

NU Online News Service, Dec. 9, 10:33 a.m. EST, Anaheim,Calif.?A federal official told state insurance regulatorsworking on a scheme to police their marketplace that decidingjurisdictional control issues is a key point.[@@]

Lawrence Cluff, assistant director-financial markets andcommunity investment with the General Accounting Office,Washington, explained that it is critical to have an understandingof the meaning of domestic deference, which he said meansaccountability rather than complete authority over other states'regulation of insurers.

His advice on how to create a strong market conduct system cameat the winter meeting of the National Association of InsuranceCommissioners here, where officials are honing a state-based systemto police market conduct that they said will create a better safetynet for consumers.

Mr. Cluff said an effective market conduct system has threecomponents: a functional and comprehensive market analysis system,targeted examinations for those companies identified through marketanalysis, and a routine review of a company's internalcontrols.

State regulators, he noted, are already starting to take stepstoward better market conduct oversight.

The issue of domestic deference, he mentioned, is one thatinsurers, regulators and legislators have been attempting to get ahandle on as they create a market conduct system.

The review of insurers' conduct, according to Mr. Cluff, needsto be accomplished by regulators and not industry organizationssuch as the Insurance Marketplace Standards Association.

While he commended IMSA's work, he added that an IMSAdesignation may be one factor that a regulator would considerrather than a substitute for regulatory oversight.

Companies do not want additional oversight but "just need toread the papers to realize that in the world we live in today,people look at the way that a company does business. Getting caughtdoing something wrong costs more," Mr. Cluff added.

Indeed, insurers have expressed general support for astreamlined market conduct system but have also said that anymarket conduct analysis should result in clear benefits thatjustify the expense of a data call.

During the meeting, Ohio regulator Sue Stead said that ananalysis of data to date suggests that problems are being detectedthat would not otherwise be found by reviewing available filings.She cited examples of higher than average replacements for severallife companies that had been discovered because of the datacall.

According to regulators from several states, the first round ofa data call for property-casualty insurers indicated that companieswere having problems correctly submitting the requested data.

For instance, in Illinois, 112 companies had problems withsubmitted data compared with 12 companies in the previous year.

Regulators also completed a first draft of a Market AnalysisHandbook, a how-to guide for regulators to better develop uniformapproaches to market conduct oversight.

Jim Connolly is NU's Life-Health Edition senioreditor.