Industry Splits Over Insurer Conduct Oversight Regs

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By Jim Connolly, Life Health Senior Editor

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NU Online News Service, June 13, 12:17 p.m.EDT?Industry representatives and state regulatorsdiscussing formats for monitoring insurance company conduct arevoicing differing ideas over the breadth of data required and thefrequency needed for examinations.

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The disparity in views were highlighted both at a public hearingsponsored by the National Conference of Insurance Legislators,Albany, N.Y., and again during a discussion among regulators andinsurers over how to proceed with a market conduct annual statementproject currently being developed by the National Association ofInsurance Commissioners, Kansas City, Mo.

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Market conduct encompasses company business behavior andcustomer treatment issues such as fairness of company practices,claim payment times, policy renewals and policy generation.

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There is a "strong desire" on the part of trade groups to seeNCOIL work in collaboration with the NAIC on conduct oversight,said Tim Tucker, NCOIL director of state-federal affairs.

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Whether or not a model market conduct law is developed by NCOILis something legislators will need to discuss further and learnmore about, he added.

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However, he noted that dialogue in Congress has suggested a needfor action.

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Among the speakers at the NCOIL hearing was Nebraska InsuranceDirector Tim Wagner.

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Mr. Wagner heads up an effort at the NAIC for states tocollaborate and accept company examinations conducted by a state ofdomicile. To date, five states are participating in thesecollaborative arrangements.

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Speaking of the possibility of a market conduct model law, Mr.Wagner said at this point, it is "premature" to start drafting amodel. He added that more dialogue is needed at the June 21 NAICmeeting and the NCOIL summer meeting in July.

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Mr. Wagner added that a periodic examination of a company is "abetter tool" than targeted examinations resulting from consumercomplaints.

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Mr. Wagner said the domestic regulator should be responsible forthe market conduct oversight of insurers.

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While there is a goal of getting 15 states to participate inreciprocity, he said that there are currently only five statesparticipating.

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"There are entrenched interests at the NAIC," but a reciprocityagreement among interested states makes it possible to "go outsideof the NAIC committee structure." While calling some regulators"entrenched," Mr. Wagner noted that they are, "in fact, a minority"who are protecting their own interests.

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The collaborative agreement is entered into every year so thatit is, in fact, "a living, breathing document," he added. Thatallows for flexibility where needed, he continued.

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Periodic examinations conducted by a state of domicile are oneway to approach regulation, according to Mr. Wagner. However, otherstates prefer a targeted approach and "a lot of states are askingwhy they need to conduct market conduct examinations at all."

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Insurers are also weighing in on a market conduct data analysisproject that the NAIC is working on with a market conduct annualstatement.

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Regulators want to repeat a data call, but insurers are sayingthat data should be analyzed before new data is collected.

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The issue is scheduled to be discussed more fully during theNAIC June 21-24 summer meeting.

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Birny Birnbaum, executive director of the Center for EconomicJustice, Austin, Texas, said that extending the data call projectanother year is valuable because looking at data over time makes iteasier to check for the quality of data collected.

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To ensure the quality of the data, he said, it is necessary tohave a two-to-three-year data collection period rather than asix-month data call.

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But, Linda Lanam, ACLI vice president and deputy generalcounsel, asked regulators, "How is it making regulation better.That is what we haven't seen yet." Later, she added, "We don't knowwhat you are trying to get to" and whether it will create a clearimprovement to regulators or the regulated.

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Property-casualty insurers offered input on efforts at bothNCOIL and at NAIC.

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"We have no objections to NCOIL drafting a model if it isdrafted in an appropriate way that has benefits identified in thereport," said Don Cleasby, assistant vice president and assistantgeneral counsel with the National Association of IndependentInsurers, Des Plaines, Ill.

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On the issue of the NAIC data call, Mr. Cleasby said a decisionon extending the data call should not be made until the regulatorshave gone through the process once.

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One of the items in the report that would be beneficial is thedevelopment of self-evaluative procedures for companies, accordingto Dave Reddick, market regulation manager with the NationalAssociation of Mutual Insurance Companies, Indianapolis.

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On the issue of developing a model, Mr. Reddick said thatbecause of the differences in state laws on personal and commerciallines of business, a model law proposal needs to be studiedmore.

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During the hearing, the American Council of Life Insurers,Washington, submitted testimony that said it would discuss themodel law proposal with members. It also encouraged more immediateaction such as encouraging insurer self-audits and using tools suchas the NAIC Market Conduct Examiners Handbook.

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ACLI said in its testimony that deficiencies in the currentsystem that must be addressed include efforts to better coordinatemultistate examinations or reciprocal acceptance of an examinationdone by another state.

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ACLI also expressed reservations over vesting a company's stateof domicile with primary responsibility for market conductoversight because of concerns ranging from variation in state lawsand regulation on privacy of examination work papers to the limitedstaff available to conduct examinations.

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