Market Conduct Model Wins NAIC Okay

It was first adopted by the National Conference of Insurance Legislators, Albany, N.Y., in February 2004. The NAIC membership then decided to make changes to the model to allay concerns among regulators that the model would restrict their ability to perform market conduct activity.

After NCOIL revised the model and sent it back to the NAIC, state legislators took the position that if the changed version of the model was not approved at the meeting here NCOIL would adopt its original model.

Many of the elements in the model are incorporated in the Congressional draft of a proposed State Modernization and Regulatory Transparency Act (SMART), the federal road map for modernizing insurance industry regulation.

The SMART draft was released Aug. 19 by U.S. Reps. Mike Oxley, R-Ohio, and Richard Baker, R-Louisiana. Streamlining the market conduct process is one area that is considered a way to illustrate the effectiveness of state insurance regulation.

During the NAIC discussion prior to the vote, Jorge Gomez, Wisconsin insurance commissioner, expressed his continuing reservations over points in the model that he said would make it more difficult to take market conduct action against companies.

Among the concerns expressed by Mr. Gomez was that the language in the model would give insurers the right to challenge statutory authority as well as requiring paperwork analysis desk examinations as opposed to on-site examinations.

Mr. Gomez said language is also unclear on what constitutes qualified staff. Hiring a young examiner could be construed as a violation of the model and result in a lawsuit, he said.

"We do not have the staff to handle added litigation in court," he said, adding that the resulting challenges over staff qualifications might thus discourage departments from addressing problems in the marketplace.

In response, Joel Ario, Oregon administrator and NAIC vice president, noted the model's reliance on market data analysis. He also noted that a recent data call on credit scoring was going to be litigated, underscoring that the industry can sue in any event.

Other points that were raised prior to the vote included: whether an attempt to accommodate process is worth losing substantive principles regulators use, and whether lawsuits could be brought against commissioners and their representatives for initiating market conduct actions.

Following the vote, Tim Tucker, an NCOIL representative, said that work to get the joint NCOIL-NAIC model adopted would begin right away for the 2005 legislative session. He noted that the model was introduced last session in Nebraska and New York.

After the decision, Mr. Ario said that it was a "historic joint effort."

Insurers hold a variety of positions on the model. The model does include points such as a state of domicile provision, says Bruce Ferguson, a representative with the American Council of Life Insurers, Washington. Under this provision, the state where an insurer is based would take the lead on a market conduct examination of the company.

Lenore Marema, a representative with the Property Casualty Insurers Association of America, Des Plaines, Ill., noted that NCOIL said it would consider further changes and "that is something that we need to do soon."