NCOIL Market Conduct Model: No Deference?

By Jim Connolly

NU Online News Service, Feb. 9, 11:32 a.m.EST?A proposal that an insurer's state of domicile shouldhave the primary authority to regulate that carrier's conductappears to be losing ground among state legislators drafting amarket conduct model law.[@@]

The Market Conduct Surveillance Model Act draft will bediscussed during the Feb. 26-29 meeting of the National Conferenceof Insurance Legislators in San Antonio.

Legislators, in discussions held in advance of the Texassession, have said a model could be adopted at the meeting ifsufficient compromise is reached on parts of the model now underdevelopment. Following adoption, it would be brought to statelegislatures.

So far during the Albany, N.Y.-based group's advancediscussions, the issue of deference has been one of several keypoints raised during deliberations over possible changes for themodel.

Domestic deference is the concept of other states deferring to astate of domicile.

At this point legislators have said that unless agreement isreached on detailed language, the deference idea is not feasible.Language that had been in an earlier draft reflecting domesticdeference was removed.

Legislators during the discussion said a "domestic deferencelite" approach for the draft would be more viable.

That approach for the model would make it possible but notmandatory for a commissioner to accept a market conduct reportprepared by the insurance commissioner where the insurer isdomiciled, Linda Lanam, vice president-annuities with the AmericanCouncil of Life Insurers, Washington, explained.

Another point that was raised was the issue of references toNAIC models and handbooks in the body of the model.

Inclusion of these references will create uniformity acrossstates, according to Joel Ario, insurance administrator in Oregonand NAIC secretary-treasurer. The concept is similar to the systemcurrently used to regulate financial solvency, he explained.

Uniformity is important to life insurers, according to Ms.Lanam, because it allows companies to build compliance systems thatare more cost effective.

But property-casualty insurers are expressing concern over suchinclusions, according to Don Cleasby, assistant vice president andgeneral counsel with the Property Casualty Insurers Association ofAmerica, Des Plaines, Ill.

Some insurers have expressed concern that referencing the NAICin the model would give the organization, based in Kansas City,Mo., undue authority.

Birny Birnbaum, an NAIC-funded consumer advocate and executivedirector of the Center for Economic Justice, Austin, Texas, offeredanother reason for not referencing the NAIC.

Regulators need to act in a quick and timely manner, and if theyhave to rely on an NAIC work product that is being developed orneeds to be updated, then they might not be able to do this, Mr.Birnbaum said.

The idea that a regulator may be curtailed because the actionwas not a part of an NAIC tool such as the market analysis handbookis not acceptable, he added.

Mr. Birnbaum also disagreed with any wording that would create a30-day period before the results of a market conduct report wouldbecome public. A report should be made public once it is madefinal, he said.

He also urged regulators to keep a whistleblower provision forthe model. Mr. Birnbaum said current whistleblower laws are notsufficient to protect agents and others who report wrongdoing.

Another provision in the model would require the certificationof the company's chief executive officer attesting to the accuracyof statements regarding the insurer's market regulation complianceprogram. Mr. Cleasby said that the PCI would like to see theprovision removed, but Mr. Ario maintained that "it adds a level ofassurance that the product is accurate."

Mr. Connolly is NU Life-Health edition senioreditor