NAIC Market Oversight Model To Deny Due Process?
By Daniel Hays and Jim Connolly
NU Online News Service, June 9, 1:25 p.m. EDT?A national trade group representative said proposals due to come before a meeting of the nation's insurance regulators would deprive insurers of due process and the ability to screen confidential data.[@@]
The objections voiced by Lenore Marema, a vice president with the Property Casualty Insurers Association of America, relate to model statute language up for consideration at the National Association of Insurance Commissioners meeting next week in San Francisco.
At issue is the Market Conduct Surveillance Model Act, originally developed by the National Conference of Insurance Legislators and since modified during drafting by the NAIC. Ms. Marema said insurers believe the regulators language "retreats" from the NCOIL model which "wasn't perfect."
According to Ms. Marema, some of the NAIC wording would permit regulators overseeing insurer conduct to hold "informational" hearings.
Can companies appeal such proceedings, she wondered.
It is not clear, she said, what this sort of hearing would involve and is "not consistent with the NCOIL model which says we get an administrative hearing with due process."
Ms. Marema said other language omits a self-audit confidentiality provision, which essentially protects the confidentiality of reports in which an insurer is critical of its own operations. Under NCOIL, she said, such information would be kept privileged.
Perhaps, PCI's greatest concern is a provision that she said would have the effect of creating a statute that, once a state adopted it, would allow the NAIC to make subsequent alterations to the statute without the need for approval from the state legislature.
Ms. Marema explained that this could come about because the NAIC surveillance law language requires states to follow procedures in the NAIC model examination handbook. The rules in the handbook, she said are subject to later alteration.
Under the NCOIL model, according to Ms. Marema, when there is a material change to the handbook, interested parties can ask regulators to hold an administrative hearing on the revision.
PCI is concerned, she said because the NAIC would limit the definition of a material change to one where there is a direct conflict with existing state law. Ms. Marema said PCI believes that a change, to a new form of data call for example, while it might not conflict with any existing statute would certainly be a material change.
As it now stands the Market Conduct Model Act could come to a vote during NAIC executive and plenary sessions.
Besides the Des Plaines, Ill.-based PCI, the National Association of Mutual Insurance Companies, Indianapolis has also expressed concerns over the model.
The changes have gone beyond technical, said Dave Reddick, NAMIC state affairs manager. He referred to the self-audit confidentially privilege that has been removed from drafting notes.
He added that substantive changes to the NAIC version in effect make it a new model and that this will cause confusion if state legislatures are presented with two market conduct models.
Another issue due to receive major consideration during a two-hour hearing on June 14, is a proposed NAIC Model Audit Rule that includes a provision that would make all insurers earning above $25 million in annual premium comply with corporate governance requirements in the Sarbanes-Oxley Act of 2002 such as attesting to the accuracy of its financials.
Trades organizations including the American Council of Life Insurers, NAMIC, and PCI are saying that it is costly and unnecessary, while regulators are asserting that it is necessary to regulate properly for solvency.
One large company, according to ACLI, cited an increase of cost that would be 25 percent over its current $16 million compliance fees.
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