NCOIL Market Conduct Model Receives Airing

Weighing in on the model, the Kansas City, Mo.-based National Association of Insurance Commissioners has expressed concerns that individual state legislatures could modify details of the model and delay uniform standards and procedures.

Members of the National Association of Independent Insurers in Des Plaines, Ill., said they need clarification on the issue of domestic deference in the model, according to Don Cleasby, NAII assistant vice president and assistant general counsel.

"Can only a domestic state begin a market conduct exam?" he asked. "What happens if the state of domicile does not order an exam? May a non-domiciliary state request that a domiciliary state investigate an issue which the domiciliary state has not included in its examination?"

The Alliance of American Insurers, Downers Grove, Ill., sees less of a need for a comprehensive model law, according to testimony submitted by Lenore Marema, Alliance vice president of legal and regulatory affairs.

Consideration should be given to points that include the possibility that provisions of the model would affect different parts of the insurance industry differently, she wrote.

The Alliance testimony also asked if non-domestic states are bound just on the issues in the domestics exam.

UnumProvident, in its comments on the draft model, said that uniformity is important. The Portland, Maine-based disability insurer explained that because of public allegations, it has had as many as 14 states conducting simultaneous market conduct exams of its companies. Recently, the company added, three of its domestic regulators have announced that they will conduct a coordinated multistate market conduct examination and that a total of 42 states would participate.

UnumProvident said a "troubling" trend is the use of third-party contractors, which the company said is leading to an "exponential" increase in costs. In the companys case, it says that examination fees exceeded $1 million for a single state exam.

Trade groups are also expressing concern over the cost of contract examiners. The Life Insurers Council in Atlanta, Ga., was just one of a number of trade organizations that urged that tighter controls be put in the model.

LIC recommends that there should be a requirement to solicit all potential bids, according to Scott Cipinko, executive director.

The American Council of Life Insurers, Washington, suggests that the purpose of the model should be to establish a state-of-domicile approach using market analysis for conducting targeted exams that are coordinated among states.

The model should also include a provision that would allow states with significant market share of a company to conduct market conduct activities if a state of domicile does not have the resources to perform that function. And, according to the ACLI, participation must be limited to those states in which the insurer has a significant market share.

In comments during a discussion on the model, Birny Birnbaum, executive director for the Center for Economic Justice, Austin, Texas, emphasized that market analysis is essential for properly regulating the marketplace.

The collection and analysis of data would enable a commissioner to target examinations and market conduct efforts.

Mr. Birnbaum said commissioners should perform a thorough market conduct analysis but, other than this requirement, should not have undue restrictions placed upon them.

Jim Connolly is a senior editor for NUs Life-Health & Financial Services edition

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 14, 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.