Local Control A Market Conduct Issue

By Jim Connolly

NU Online News Service, Dec. 3, 12:24 p.m.EDT?Domestic deference, the policy of allowing the statewhere an insurer is domiciled to take the lead in policing itsactivities, is emerging as a key issue in setting insurance marketregulations, industry stakeholders said in interviews.

The question of deference is coming to the forefront asinsurers, regulators, legislators and consumer advocates gatherthis week for the winter meeting of the National Association ofInsurance Commissioners, Kansas City, Mo. [@@]

On the agenda is discussion of a model law that legislators saidwould establish good market conduct standards.

That drafting effort is in part being driven by federallegislators and regulators who say that action needs to be taken.The call for action was echoed recently in a report issued by theGeneral Accounting Office.

Joel Ario, National Association of Insurance Commissionerssecretary-treasurer and Oregon insurance administrator, discussingdomestic deference, said that there is an evolution toward amodified approach.

Such an approach would allow non-domiciliary states flexibilityto take action on issues that a domestic state is not acting on, hecontinued.

Domestic deference is an issue that will receive more review asthe National Conference of Insurance Legislators, Albany, N.Y.,moves its Market Conduct Surveillance model law toward ananticipated adoption in February 2004, said Tim Tucker, NCOILdirector of state-federal affairs.

Nancy Davenport, senior counsel and director, Northeast region,with the American Council of Life Insurers, Washington, said thatthe NCOIL model is making good progress, but the issue of domesticdeference still needs to be discussed. Questions such as whether alarger state would enact a model law with domestic deference needto be answered, she continued.

And, Ms. Davenport adds, definitions of terms such as"complaint" and "significant premium volume" are needed in order toensure uniform market conduct treatment among states.

Mr. Ario mentioned there are three pillars that are important tomarket conduct oversight: market analysis through the effective useof data, uniformity and collaboration among states.

Mr. Ario said that the market analysis handbook, a compilationof tools that regulators have been using to monitor market conduct,is now ready for use. Regulators' efforts to use data calls toassess market analysis are making strides, but the idea still needsfurther testing, he added.

Any market conduct reforms should retain a commissioner'sauthority to make a decision on a market conduct issue, Mr. Ariosaid.

Mr. Connolly is a senior editor with NU's Life-HealthEdition