Washingtons Patience Might Be Running Out
Washington has been buzzing with talk about state regulation of insurance lately, and that cant be good news for state regulators and their supporters in the industry.
The U.S. General Accounting Office, in a new report on state regulation requested by a Capitol Hill powerhouseHouse Financial Services Committee Chairman Mike Oxley, R-Ohio–said that the National Association of Insurance Commissioners should come up with a set of standards for a uniform market oversight program that all states can live with.
The current system is a mess, with individual states determining how to carry out its market conduct function without the benefit of generally accepted national standards, GAO indicated. The result, said GAO, is that market conduct exams are implemented inconsistently and infrequently.
GAO acknowledged that state regulators, working through the NAIC, have tried to promote uniformity and interstate cooperation when it comes to market conduct exams, but the federal agency said progress has been slow.
Indeed, GAO asserted that states across the country have no generally accepted criteria for deciding which companies to examine or what kind of examination to perform. For example, GAO noted that although the NAIC has a handbook for market conduct examiners, states are not required to use it. Whats more, GAO said the handbook does not deal with some basic issues, such as when to conduct examinations or how to target which companies to examine.
Whats worse, GAO reported that although the NAIC has put a computer database in place aimed at helping states coordinate examinationsthe Examination Tracking Systemthe system has not gotten wide use.
The NAIC has been taking steps to speed up the process of improving state market analysis and conduct exams, but GAO said that since state regulators have dragged their feet in the past about establishing uniform regulations, the odds of getting quick action on market conduct are not encouraging.
The state regulator who serves as the point person in the NAICs initiative to improve regulation in these areas took solace in the GAOs report. Oregon Insurance Administrator Joel Ario said that GAOs assessment "confirms we are headed in the right direction." He said the NAIC is already taking steps called for by the GAO report, such as greater use of market conduct analysis and more collaboration among states.
"The only place where I had a quarrel, in a draft released at the start of the summer, is that the draft overstated how far regulators still had to go," he said.
Given the propensity of state regulators to drag their feet on regulatory reforms, we wouldnt blame the federal government for feeling impatient about the progress being made on the creation of a system with some standards across state lines to improve efficiency and cut costs.
Congress will not wait forever to act. We get the feeling that we are one major insolvency away from having the federal government swoop in with its own regulatory scheme. NAIC and state insurance departments had better act while they still have the opportunity, or risk forfeiting their authority to a higher and less reasonable power.
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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