GAO Says NAIC Lacks Conduct Review Standards
Washington
The National Association of Insurance Commissioners should develop a common set of standards for a uniform market oversight program that will include all states, the United States General Accounting Office said.
In a new report on state insurance regulation, GAO says that because there are no generally accepted standards for market analysis and market conduct examinations, each state decides how it will carry out these activities.
As a result, GAO continues, few states have formal programs for market analysis and examinations are used inconsistently, and in some cases, infrequently.
Moreover, GAO says, states have no generally accepted criteria for determining which companies to examine or which type of examination to perform.
GAO notes that the NAIC has tried to find ways to facilitate uniformity in state market analysis programs and promote interstate cooperation in market conduct examinations.
However, despite these efforts, progress has been slow, GAO says.
Even though NAIC developed a handbook for market conduct examiners, states are not required to use it and it does not contain standards on when to conduct examinations or how to choose companies, GAO said.
Moreover, GAO added, while NAIC developed an Examination Tracking System, which is a computer database aimed at helping states coordinate examinations, states have not used the system widely.
Thus, GAO said, the system has not improved efficiency as quickly as had been hoped.
GAO also noted that NAIC recently announced a major new initiative to improve insurance regulators use of market analysis and market conduct examinations.
However, GAO said, because progress in the past has been slow, results from the new initiative are uncertain.
In comments incorporated in the report, the Kansas City, Mo.-based NAIC said that the GAO analysis confirmed several concerns that insurance regulators and the insurance industry share about market conduct regulation.
However, NAIC noted, it is difficult to harmonize market conduct regulation. NAIC said that market behaviors of insurers can be quite different from state to state because laws are different and insurance compliance with the laws may vary.
Nonetheless, NAIC said, it is aware of the varying approaches to market analysis across the states and has made creation of a more systematic and structured system a top priority.
NAIC said it is trying to accomplish this goal through the development of a market analysis handbook and implementation of a market conduct annual statement pilot program.
Gary Karr, a representative of the Washington-based American Insurance Association, said that AIA is studying the report, but added that it reflects what AIA has been saying about the need for optional federal chartering of insurance companies. Mr. Karr said, when it comes to accomplishing its goals, NAIC sometimes has great difficulty doing so.
David Farmer, senior vice president of federal affairs for the Downers Grove, Ill.-based Alliance of American Insurers, said nothing in the GAO report suggests that the NAIC cannot succeed.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 10, 2003. Copyright 2003 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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