Mkt. Conduct Reforms Proposed

Evaluating the usefulness of existing data, both at the NAIC and in the states.

Identifying any deficiencies and determining the data that is most useful.

Creating statistical models for specific lines of insurance and for claims areas.

Creating a user-friendly way to disseminate information to the states.

In Pennsylvania, according to Dennis Shoop, a director in the insurance departments market surveillance division, an examination can be driven by any number of factors including products sold, agent activity, market share or a random selection.

Information is gathered by the department and reported on an aggregate rather than company- or agent-specific basis to encourage participants to be more forthcoming, Mr. Shoop explained.

The data can then be distributed to people within the department and those outside the department who are making policy decisions, he said. From these reviews, the department was able to cull information on issues including Y2K and the prompt payment of health claims, he noted.

Ohio Insurance Director Lee Covington noted the need for states to better use their already stretched resources. Public concern over an issue plays a role in prioritizing, he said.

For instance, he found that consumers were concerned about whether health carriers were paying claims and, consequently, the department pulled 10.8 million claims from 34 companies to see if they were being properly paid. The action resulted in seven health carriers paying a fine and agreeing to corrective action.

Data calls among states also need to be more uniform, according to Mr. Covington, who said that a data call can produce data from states gathered in 15-20 ways.

Nebraska Insurance Director Tim Wagner said that zone examinations could help eliminate the repetition of every state coming in and looking at the same thing. "A zone concept creates efficient oversight, he said. For a zone approach to work, however, states need to move beyond protecting their turf or doing their own thing, he added.

He also cautioned that a market conduct exam shouldnt be used strictly as an enforcement tool. He recounted a market conduct course he had taken in which the instructor–an examiner–said that 82 percent of exams had resulted in fines.

He added that when examiners go out of state, they should not "raise cane and have no political accountability."

Cynthia Amann, a Missouri regulator, asked if a zone exam was the right approach given the fact that there were state issues that needed to be addressed. Geographically, economically and in terms of issues, state focuses are different, she said.

Brad Connor, a regulator from Missouri, expressed concern that there would be a burden on a domiciliary state both in terms of taking the lead on a zone exam and facing political pressure. He said a regional approach might work better than a zone comprised of specific states.

The property-casualty industry spoke of practical small steps to complement a "big sky picture."

Improvements such as targeted examinations and an emphasis on training of examiners represent "better use of resources" and should be pursued, according to Lenore Marema, vice president of legal and regulatory affairs at the Alliance of American Insurers in Downers Grove, Ill.

But she asked whether it was really possible to achieve market conduct improvement goals on a countrywide basis. "Does your examination staff feel comfortable that local issues are being addressed. If they dont feel that local issues are being addressed, it wont work," she said. She added that the zone exam leaves open the question of whether all states will be satisfied with the end result.

Laura Kersey, counsel with the American Insurance Association in Washington, expressed the need for uniformity and the greater coordination of market conduct examinations.

When regulators are looking at "big sky" issues, they should not forget to look at the ground once in a while and consider smaller, practical ways to make market conduct exams more efficient, said Don Cleasby, assistant general counsel with the National Association of Independent Insurers in Des Plaines, Ill.

Noting that 17 states do not have market conduct units, Dave Reddick, a representative with the National Association of Mutual Insurance Companies in Indianapolis, said that uniformity should be one of the most important issues regulators address when they revamp the market conduct process.

Life insurers saw a future market conduct system that would rely heavily on the current Market Conduct Examiners Handbook, an annual statement filing and support for the zone system. Market conduct exams could be improved with better use of the handbook, which is a "well thought out document," according to Bryan Cox, director-state relations with the Washington-based American Council of Life Insurance.

Ms. Cox also said that the ACLI supported an annual market conduct statement filing or "gray book" for lack of a better color choice. And he said that a "zone system can really bring rationality and uniformity to a system."

Birny Birnbaum, executive director of the Center for Economic Justice in Austin, Texas, said that the resources available for market conduct exams should be the same as those available for financial exams. "Are those resources even in the ballpark?" he asked.

Mr. Birnbaum said he also opposed a self-audit privilege that would protect insurers that audit their own market conduct practices and receive immunity from penalties if any infractions are corrected.

Jim Connolly is a senior editor with NU's Life & Health/Financial Services Edition.

Reproduced from National Underwriter Edition, June 22, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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