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 adiscussion on how to balance consumer protections, state regulatoryauthority and costs and administrative burdens on insurers.

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

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

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

The company said uniformity is important. It explained thatbecause of public allegations, as many as 14 states have conductedsimultaneous market conduct exams of its companies.

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

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

The company expressed concern that examiners are interpretingaccess to include information that would normally be covered byattorney-client privilege.

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

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 properlyregulating the marketplace. The collection and analysis of datawould enable a commissioner to target examinations and marketconduct efforts.

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

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

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

Members of the National Association of Independent Insurers, DesPlaines, Ill., need clarification on the issue of domesticdeference, said Don Cleasby, NAII assistant vice president andassistant general counsel.

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

Additionally, Mr. Cleasby said that inclusion of NAIC workproducts that are living documents could, in effect, beautomatically incorporated into law.

The Alliance of American Insurers, Downers Grove, Ill., saw lessof a need for a comprehensive model law, according to testimonysubmitted by Lenore Marema, Alliance vice president of legal andregulatory affairs.

Consideration should be given to points that include thepossibility that provisions of the model would affect differentparts of the insurance industry differently, she wrote. TheAlliance testimony also asked if non-domestic states are bound juston the issues in the domestic's exam.

Among issues that concern the National Association of MutualInsurance Companies, Indianapolis, is the inclusion of a provisionregarding insurers' compliance systems and procedures, explainedDave Reddick, NAMIC state affairs manager.

The Life Insurers Council recommended that there be arequirement to solicit all potential bids, said Scott Cipinko, itsexecutive director. The recommendation also reflects other tradegroups in that it calls for specificity of billed items as well asan appeals process.

The American Council of Life Insurers in Washington suggestedthat the purpose of the model should be to establish astate-of-domicile approach using market analysis for conductingtargeted exams that are coordinated among states.

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