NCOIL Market Conduct Model Receives Airing

By Jim Connolly

NU Online News Service, Nov. 5, 5:30 p.m. EST--A proposed market conduct model law is opening up a discussion on how to balance consumer protections, state regulatory authority and costs and administrative burdens on insurers.

State insurance legislators are currently fine-tuning a draft of the Market Conduct Surveillance Model Law being developed by the National Conference of Insurance Legislators, Albany, N.Y.

The model will receive further discussion at NCOIL's annual meeting in Santa Fe, Nov. 20-23.

UnumProvident, Portland, Maine, was one of a number of entities commenting on the draft model.

The company said uniformity is important. It explained that because of public allegations, as many as 14 states have conducted simultaneous market conduct exams of its companies.

Recently, the company added, three of its domestic regulators announced they will conduct a coordinated multistate market conduct examination with participation of 42 states.

One of the "troubling" trends UnumProvident cited is use of third-party contractors, which it maintained is leading to an "exponential" increase in costs. In the company's case, it said examination fees exceeded $1 million for a single state exam.

The company expressed concern that examiners are interpreting access to include information that would normally be covered by attorney-client privilege.

A number of trade groups also expressed concern over the cost of contract examiners. They urged that tighter controls be put in the model.

In comments during a discussion on the model, Birny Birnbaum, executive director for the Center for Economic Justice, Austin, Texas, emphasized that market analysis is essential for properly regulating the marketplace. The collection and analysis of data would enable a commissioner to target examinations and market conduct efforts.

And, Birnbaum said, commissioners should perform a thorough market conduct analysis. Other than this requirement, however, they should not have undue restrictions placed upon them.

The National Association of Insurance Commissioners, Kansas City, Mo., is also weighing in on the model, expressing concern that individual state legislatures could modify details of the model and delay uniform standards and procedures.

Domiciliary state deference is a form of "parochialism," said Kevin Hennosy, publisher of SpreadtheRisk.org, Kansas City, Mo. And, he continued, not every state is ready to meet the charge of fulfilling market conduct standards.

Members of the National Association of Independent Insurers, Des Plaines, Ill., need clarification on the issue of domestic deference, said Don Cleasby, NAII assistant vice president and assistant general counsel.

Mr. Cleasby asked, "Can only a domestic state begin a market conduct exam?" And, also, "What happens if the state of domicile does not order an exam? May a non-domiciliary state request that a domiciliary state investigate an issue which the domiciliary state has not included in its examination?"

Additionally, Mr. Cleasby said that inclusion of NAIC work products that are living documents could, in effect, be automatically incorporated into law.

The Alliance of American Insurers, Downers Grove, Ill., saw less of a need for a comprehensive model law, according to testimony submitted by Lenore Marema, Alliance vice president of legal and regulatory affairs.

Consideration should be given to points that include the possibility that provisions of the model would affect different parts of the insurance industry differently, she wrote. The Alliance testimony also asked if non-domestic states are bound just on the issues in the domestic's exam.

Among issues that concern the National Association of Mutual Insurance Companies, Indianapolis, is the inclusion of a provision regarding insurers' compliance systems and procedures, explained Dave Reddick, NAMIC state affairs manager.

The Life Insurers Council recommended that there be a requirement to solicit all potential bids, said Scott Cipinko, its executive director. The recommendation also reflects other trade groups in that it calls for specificity of billed items as well as an appeals process.

The American Council of Life Insurers in Washington suggested that the purpose of the model should be to establish a state-of-domicile approach using market analysis for conducting targeted exams that are coordinated among states.

The model should also include a provision that would allow states with significant market share of a company to conduct market conduct activities if a state of domicile does not have the resources to perform that function, the group said. And, according to ACLI, participation must be limited to those states in which the insurer has a significant market share.

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NCOIL Market Conduct Model Receives Airing

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