It may be broke, but that doesn’t mean there’s any agreement on how to fix it. That’s the basic lesson to be drawn from the NAIC’s withdrawal of its version of the Market Conduct Surveillance Model Act at its meeting in San Francisco.
Without strong support from the industry or from the National Conference of Insurance Legislators (NCOIL) (See IJ Web site June 14), the regulators decided to abandon efforts aimed at the adoption of their own version of the act, and instead opted to make recommendations to the NCOIL concerning the model prior to the legislative organization’s July meeting.
The NAIC said it hopes to create a unified approach to the market conduct model, even if it has to be amended again by the state legislatures that pass it next year. The NCOIL model act was originally adopted in late 2003 and the NAIC was considering creating its own model based on the legislators’ version.
The Property Casualty Insurers Association of America suggested that the amended NAIC version of the NCOIL model did not address due process for insurers, as it would have allowed regulators to conduct “informational hearings”, and left unclear whether insurance companies could appeal this process. The original NCOIL model did allow administrative hearings with due process procedures for insurance companies.
The PCI also noted that some other issues raised “red flags,” including “confidentiality provisions; triggers for market conduct exams; the incorporation of NAIC work products by reference into the statute; and the potential for the expansion of the scope of targeted exams.”
However, the PCI said its major concern “with the proposed NAIC model is that, as written, if a state adopted the model it would allow the NAIC to make subsequent changes to the law without the need for approval from the state legislature.”
“The crux of the problem is that the NAIC surveillance law language mandates that states follow procedures in the NAIC model examination handbook. The rules in that handbook are subject to later changes and amendments which would have to be addressed,” stressed Lenore Marema, PCI VP for industry and regulatory affairs. “The NAIC model improved the NCOIL model in some respects, but also retreated from some of the legislative direction NCOIL set for in its model.”
The PCI nonetheless indicated that it is “encouraged by the NAIC action and pledged to continue to work with NAIC and NCOIL in an effort to develop a fair and effective market conduct exam model.”
“The NCOIL model provides a solid basis to build upon. However, even with the NAIC amendments, the NCOIL model still has shortcomings that need to be addressed in order to be effective in achieving real reform,” Marema continued. “PCI will work with all parties at the NCOIL Meeting in July to improve and rectify these concerns so that state legislatures next year have the ability to pass real reform in the arena of market conduct.”