NAII Supports NCOIL’s Draft Market Conduct Model Law; Specific Concerns Linger

September 15, 2003

The National Association of Independent Insurers (NAII) has commended state legislators for developing a draft model law that
reportedly seeks to improve state market conduct regulation.

However, the NAII expressed concerns with specific provisions in the draft model that mandate minimum standards for a compliance program and add an oversight authority that could create another bureaucratic layer for insurers.

The National Conference of Insurance Legislators’ (NCOIL) Market Conduct Task Force held a hearing in Chicago last week to receive comments from interested parties on its Market Conduct Surveillance Model Law.

“NAII supports this draft model. However, our members voiced concerns early on about a provision that would mandate minimum standards established by the state commissioner. We do not believe that any single set of standards can provide compliance programs that are appropriate for all of the different kinds of property/casualty insurance companies that do business in a market,” Don Cleasby, NAII assistant general counsel, said.

“A compliance program for a company that only writes workers’
compensation is going to be different than one for a company that writes nonstandard auto insurance. NAII members do not believe mandating such a program is needed to create a culture of corporate compliance. The Unfair Trade Practice and Unfair Claim Settlement Practices Act adopted by state legislatures around the country already accomplishes that result,” Cleasby commented during his testimony.

Another concern voiced by NAII is the creation of an “association reviewer” who would have independent regulatory authority to perform tasks for a nondomiciliary state.

“NAII again has concerns that creation of an “association reviewer” with independent regulatory authority would add yet another layer of unnecessary bureaucratic oversight,” Cleasby continued. “Our members expressed a willingness to allow nondomiciliary states to conduct targeted market conduct examinations on issues not covered by the domiciliary state’s examination as long as the nondomiciliary state follows the models’ procedures. This option is
more acceptable than a third layer of regulatory oversight by an “association reviewer.”

NCOIL said it would consider the draft with comments presented at the hearing and then possibly vote to adopt the model at their regular meeting held later in the fall, according to the NAII.

“We support the market conduct model. However, we believe the concerns raised at this hearing are important ones and need to be addressed before the model is adopted, ” Cleasby added.

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