Insurer Group Voices Concerns Again Over Proposed Changes to Market Conduct Suveillance Act

April 8, 2004

The Property Casualty Insurers Association of America (PCI) again raised its concerns to the National Association of Insurance Commissioners’ (NAIC) Market Conduct Committee regarding their proposed changes to the National Conference of Insurance Legislators’ (NCOIL) Market Conduct Surveillance Model Act that is currently being reviewed.

“We stand by our earlier comments that suggested that state regulators who developed the NAIC’s uniform procedures must be willing to be bound by them when they are enacted into law if real reform is to take place in the state regulatory system,” said Lenore Marema, PCI vice president, industry and regulatory affairs. “While the NCOIL model is not perfect, in our opinion, it is preferable to the existing system because it sets parameters for how market analysis and exams must be conducted, making the process more consistent and rational among the states.”

Concerns raised by PCI that were considered, but not yet resolved are:

· The Scope of Exams: The focus of an exam must be on an insurer’s general business practices and not on identifying infrequent or unintentional random errors. This statement was included in the 1979 McKinsey report and was a key conclusion of the NCOIL report. The NCOIL Model was intended to set forth what is the proper focus of an exam and what is not.

· Due Process: The NAIC has proposed a significant change in “due process” that was resolved by legislators when it was raised in connection with the original NCOIL model. To achieve the uniformity desired, specific NAIC work products were incorporated by reference into the model. However, it was recognized that this would give state regulators the authority to make law in their states by simply amending the documents incorporated by reference into the statute. The NCOIL model requires notice and an opportunity for interested parties, including consumers, to request a public hearing under the state’s administrative process if the commissioner makes material changes to one of the NAIC documents referenced in the model act. According to PCI, the NAIC wants to change the due process hearing to an informational hearing.

· Arbitration: The NAIC market conduct model does not include the arbitration clause suggested by the PCI early on in the process.

“Overall, we ask the NAIC to recognize and embrace the changes made in the NCOIL Model Act that will affect the market conduct exam process,” Marema said.

The Market Conduct Committee will accept comments next Monday and will issue a new draft on Wednesday, April 14th, as well as reschedule the next conference call meeting. The Committee plans to have the model adopted by the full NAIC no later than the June NAIC Summer Meeting in San Francisco.

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