PCI Says Lack of “Due Process” Still an Issue with Market Conduct Model Act

July 21, 2004

According to the Property Casualty Insurers Association of America (PCI), the failure of regulators to include “due process” provisions in the proposed changes to the National Conference of Insurance Legislators’ (NCOIL) Market Conduct Surveillance Model Act could give carte blanche to state insurance regulators to amend statutes on market regulations without legislative approval.

Last week NCOIL’s Executive Committee adopted the suggested amendments to the market conduct model act recommended by the National Association of Insurance Commissioners (NAIC), by a 19-9 vote. The legislative group included a caveat, however, stating that if the NAIC does not adopt the model as amended, the NCOIL Market Conduct Surveillance Model Act will revert to the original language, as adopted in February 2004. NAIC is expected to consider the NCOIL model with the amendments before or at its September meeting.

Some of the NAIC amendments were mainly technical in nature with the exception of the due process section.

PCI said in a statement that members strongly objected to the lack of due process provisions and encouraged NCOIL to reject the NAIC’s recommendation that the model eliminate the requirement that the commissioners can enforce material changes without legislative approval in NAIC work products (such as their Examiners’ Handbook) through the normal state administrative process. The NAIC’s amendment only requires an “informational hearing,” which according to PCI is a dangerous path to follow.

“Offering an ‘informational hearing’ is outside of the state administrative process and will not produce a record about the grievance or offer the right of appeal regarding market conduct regulation. It is important to note is that any NAIC proposed amendment or change automatically becomes law in the states where the model has been adopted because those amendments are incorporated by reference into the statute,” said Lenore Marema, PCI vice president, industry and regulatory affairs.

According to Marema, NCOIL tried to resolve the “incorporation by reference issue” by adding three choices for the state legislatures to consider, allowing states with statutes to choose one.

The first choice is the original and current language in the NCOIL model that gives notice and a right to a hearing. The second choice is the NAIC’s proposal under which the industry gets and informational hearing, but only when an NAIC change would otherwise require a statute or rule change. The final option allows an administrative hearing when the NAIC change requires a statute or rule change or when the insurance commissioner seeks a state deviation to an NAIC product.

“PCI prefers the first choice that provides due process and hopes that most states will keep the NCOIL model ‘as is’ on this issue and not delegate their legislative authority to state regulators,” Marema said. “Furthermore PCI reminded NCOIL during this meeting that it agreed there were still key issues on the table when the model was adopted in February 2004. PCI concurs and believes that until the due process issue is settled the model is not complete or really effective reform.”

In other action, NCOIL also adopted a proposed amendment to its Credit Scoring Model Act, which has been enacted in 19 states.

The specific amendment is a drafting note that reads: “This subsection prohibits an insurer from refusing to insure an applicant, insured, or other individual seeking insurance coverage because the person’s insurance score fails to meet or exceed a minimum numeric threshold unless one or more applicable underwriting factors, independent of credit information are considered.”

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