NAIC Struggled With Bevy of Issues in Philly

? Credit Scoring?The Working Group allayed some industry concerns when Co-Chair Joel S. Ario, Insurance Administrator for the Oregon Insurance Division, explained that the "Best Practices Matrix" being developed by the Working Group was not meant as a substitute for model regulation.

Mr. Ario said the aim of the matrix is to provide regulators with easy access to the different approaches to credit scoring regulation taken in various states.

Mr. Ario also set July 19 as the deadline for comments from interested parties on whether an informational consumer brochure on credit scoring prepared by the Illinois Department of Insurance could serve as a "baseline document" for a model brochure to be produced by the group.

Due to time constraints, the Working Group did not reach the issue of what to include in a model statement of consumer rights.

Nor did the group get through all of the points in its Best Practices Matrix. Some consumer advocates asked for clear definitions of "credit scoring," "insurance scoring" and "traditional underwriting criteria." Differing views also were expressed by interested parties on favorable payment plans offered by insurers based on customers' credit history.

The Working Group plans to review the rest of the matrix in subsequent phone calls.

? Class Actions and Mandatory Binding Arbitration?The Consumer Protection Working Group decided to form one subgroup to tackle the issue of class actions and another to examine mandatory binding arbitration.

Regarding class actions and their apparent infringement on the authority of state insurance regulators, insurance industry groups raised the issue at the NAIC/Industry Liaison Committee meeting last spring in Reno and again here in Philadelphia.

Industry representatives, such as David Snyder of the Washington, D.C.-based American Insurance Association, have been stressing that class actions brought in state courts by multistate parties often result in decisions that extend beyond the border of the forum state. These rulings often contravene state insurance laws and regulations of the home states of many of the plaintiffs, industry has said.

Consumer advocate Birny Birnbaum, consulting economist for the Center for Economic Justice, Austin, Texas, questioned the expenditure of time and resources on the class action issue. He said that reform of the class action process is not an issue identified by consumers as warranting much attention.

Robert Zeman, vice president and assistant general counsel of the Des Plaines, Ill.-based National Association of Independent Insurers, stated that ideally the various papers on class action produced by industry groups, NAIC counsel and others would be merged and refined into a final white paper.

Regarding arbitration clauses that appear in consumer insurance policies, several consumer advocates have requested model legislation that makes arbitration optional to the consumer rather than mandatory and that makes arbitration decisions non-binding.

Among other things, consumer advocates have cited prohibitively high arbitration costs for consumers, the potential for insurance company bias of arbitrators, the inability to appeal unfavorable arbitration decisions, and the unavailability of class action relief.

In a report submitted to the Working Group, Public Citizen, an organization based in Washington, D.C., claimed that businesses are using binding arbitration clauses "to gain an unfair advantage" over consumers. Additionally, the report said, insurers are using the clauses "to immunize themselves" from lawsuits over bad faith claims settlement practices, fraud claims from consumers and denials of treatment in managed care.

But others, such as AIA's Mr. Snyder and Randi Reichel of the Washington, D.C.-based American Association of Health Plans, testified about the benefits to consumers represented by mandatory binding arbitration, including the speedy and less costly resolution of disputes.

? Financial Examination White Paper?The Focus Group, which consists of representatives from industry and several state insurance departments, reported that its members had reached a consensus on 35 of 37 recommendations for improving statutory financial examinations for monitoring the solvency of insurance companies.

One of the issues, on which there is no agreement yet, involves asking insurers to move up the date of their statutory audits to March 31 in the year in which they will be under examination as a means of increasing examiner use of certified public accountant audit work papers.

The other unresolved and related issue is examiner use of CPA working papers. The Focus Group heard a detailed report from representatives of the American Institute of Certified Public Accountants, New York, on access to and use of CPA working papers.

In the end, the Focus Group decided to continue discussion of the two issues in interim telephone conferences.

? Reinsurance?The Task Force continued to discuss a controversial issue addressed in interim telephone conferences: a proposal to reduce the 100 percent collateral requirement that non-U.S. reinsurers currently must meet so their ceding companies can take credit for reinsurance.

NAII has opposed the proposal, viewing it as giving an unfair advantage to foreign reinsurers. Texas Insurance Commissioner Jos? Montemayor echoed this view when he spoke of the need to maintain a level playing field for all reinsurers.