NCOIL Rethinking Market Conduct Model

Lack of adoption by states sends legislators, regulators back to the drawing board

The National Conference of Insurance Legislators has agreed to reconsider its model law for market conduct surveillance after industry officials pointed out at NCOIL's recent annual meeting that state legislatures have not adopted their plan.

Insurer groups were pleased. "I think this is a good step forward," said David Snyder, assistant general counsel of the American Insurance Association. "The current model as such has yet to gain any acceptance in the states and has failed with respect to meeting market conduct concerns."

Both the National Association of Insurance Commissioners and NCOIL jointly adopted the current model in the summer of 2004 after two years of debate that left neither side happy. At the time, the leadership of both groups made a strong push for joint sponsorship to impress federal lawmakers that state regulation could remain viable in the face of industry concerns that the patchwork nature of 50 sets of state laws made companies uncompetitive.

Earlier that year, Rep. Mike Oxley, R-Ohio, who chairs the House Financial Services Committee, proposed legislation calling for federal preemption of state laws to nationalize insurance regulation, and state regulators and lawmakers seemed eager to get with that program, known as the State Modernization and Regulatory Transparency (or SMART) Act. Since then, both groups have either come out against or expressed strong reservations about SMART, which is off the Congressional front burner.

The question now is whether state lawmakers and regulators will go their separate ways in terms of a model law, or again try to hammer out a compromise for the sake of uniformity.

Texas, under the leadership of State Rep. Craig Eiland, D-Galveston, has adopted a market conduct model law that is viewed by the industry even more favorably than the original NCOIL proposal, which was modified to meet regulator objections. "I think what we will now do is take a look at the original NCOIL model law and bring some form of that back for discussion in March," said Paul Donohue, who serves as NCOIL's federal liaison in Washington.

Rep. Eiland, who is also NCOIL's outgoing president, said next year could serve as an opportunity to see how effective the industry-backed reforms will be in modernizing the market conduct process.

A uniform market conduct model law was only one facet of an overall reform of the process that included reliance on market data trends, rather than traditional periodic exams, and greater coordination among states over the exams.

Oregon Insurance Administrator Joel Ario–who served as point man for two years on the market conduct reform process for the NAIC–said he believed most state insurance departments had the authority to institute such reforms, regardless of any overall market conduct law, and was therefore not discouraged that the whole process was opening up again. As to whether he will once again attempt to forge a compromise between the two groups, he said he would have to talk to his counterparts from other states to see if that effort would be worthwhile.

The NCOIL decision to review the market conduct issue came despite a letter of opposition from a consumer advocate.

Birny Birnbaum, executive director of the Austin, Texas-based Center for Economic Justice, wrote NCOIL that his group viewed proposed changes to the NCOIL/NAIC Market Conduct Model Law as "an aggressive attack against consumer protection that severely limits regulators' ability to protect insurance consumers from market conduct abuses."

"We not only oppose the proposed changes, but we will be asking the NAIC to withdraw its accreditation of Texas because of that state's passage of this law," he added.

"The law passed by Texas, which Rep. Eiland wants to make into a national model, leaves…Texas…with an inadequate regulatory framework to carry out its responsibilities to protect insurance consumers and, consequently, should no longer be recognized with an accreditation that suggests otherwise," he wrote.

Former NAIC president Ernst Csiszar was the driving force behind the joint NAIC-NCOIL model, urging the compromises needed to make the document palatable to both sides to impress federal lawmakers. But since then he resigned his post to assume the presidency of the Property Casualty Insurers Association of America, which is one of the main proponents of going back to the original NCOIL document.

Mr. Csiszar was succeeded as NAIC president by Pennsylvania Commissioner Diane Koken, who has taken a much dimmer view of the SMART process and has come under fire from federal lawmakers for her seeming disinterest in the process.

Flag: The Skinny

Head: What's At Stake?

Among the issues at stake in the effort to promote a new model law for market conduct surveillance, according to the AIA's David Snyder, are:

o How much should each state defer to other states' market conduct examinations and conclusions?

o How confidential should market conduct results remain–particularly from the plaintiff's bar, who could use them as lawsuit fodder?

o How much discretion should state regulators have in market conduct investigations?

Special Reports /

NCOIL Rethinking Market Conduct Model

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