PCI: Current Market Conduct Model Falls Short of Reform Goal

September 7, 2004

True reform of the current market conduct examination process will not be achieved by amendments suggested by regulators and adopted by the National Conference of Insurance Legislators (NCOIL) to its own Market Conduct Surveillance Model Law, according to the Property Casualty Insurers Association of America (PCI).

The National Association of Insurance Commissioners (NAIC) suggested 15 amendments to the existing NCOIL Market Conduct Model Law, some of which were subsequently adopted by NCOIL. At the NAIC’s winter meeting in Anchorage (Sept. 11-14), regulators will be asked at the Plenary Session to accept or reject the revised NCOIL model. It is likely that regulators will adopt the amended NCOIL model in order to create one model act agreed upon by both organizations.

However, the PCI says the amended NCOIL model falls short of the reform needed. Of particular concern to PCI is the fact that the model does not include enforceable rights or address remedies for statutory parameters given to examiners.

“The wide ranging regulatory latitude that exists in the current state market conduct exam system is a very critical problem that contributes to the misallocation of resources for these exams,” said Lenore Marema, PCI vice president, industry and regulatory affairs. “The original version of the NCOIL Market Conduct Model Law did not go far enough to address these problems and unfortunately almost all of the NAIC amendments move this model toward permitting that unchecked regulatory discretion to continue.”

One specific concern PCI included in its comment letter to the NAIC is that while attempting to make market analysis the cornerstone for identifying companies acting improperly, the commissioner still retains the discretion to ignore the results of analysis and require an exam. PCI said that the model should place reasonable limits on the data collection authorized to engage in a market analysis and require regulatory actions to be based on the results of such analysis.

Other problems with the model and its amendments are:

· The amended NCOIL Model Law outlines a better way to review the actions of licensees (companies), but creates no enforceable rights and remedies for companies when regulators do not follow the legislative directions provided;

· The Model Law retreats from the minimal due process provisions provided to licensees when the NAIC work products, which are incorporated by reference, are changed in the future. State regulators will not only be able to interpret the law, but they will effectively be able to change the law as well;

· There are no clear limits on fines and penalties, or the market conduct examination fees that can be charged, that would prevent abuses and refocus market actions on correcting problems;

· The Model law provides no guarantee that regulators will not use other broad grants of authority in the insurance codes to continue their current practices and to avoid the legislative directions intended this model law.

“PCI supports the effort to create an one effective market conduct model act to solve problems that exist in the current state system,” Marema said. “However, because the most recently amended version of the NCOIL Model Law retreats from addressing the issues in an effective way, rather than advancing the ball, we cannot support the amended Model Law. It is the February 2004 NCOIL Model Law from which we will work. We urge NCOIL and the NAIC to return to the point of departure and work further to address these critical issues.”

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