NCOIL Scans Insurers' Conduct Law Suggestions

By Jim Connolly

NU Online News Service, Jan. 22, 3:12 p.m.EST?A state legislators group is mulling over a letter,with an array of insurers' suggestions, before they begin a neweffort to draft a model law for regulating insurance industryconduct.[@@]

The law, which would be a framework for insurance marketoversight in the various states, is being developed by the NationalConference of Insurance Legislators, Albany, N.Y. It would be knownas the Market Conduct Surveillance model act.

Insurers offered comments on Jan. 16 following an industrygathering to discuss ideas for the legislation. Domestic deference,due process and confidentiality were among the areas that insurersoffered comment on in the letter.

The joint trade letter recommended removing a domestic deferencesection until the issue could be better examined. At issue is howmuch control should be given to the regulator whose state is thevenue where an insurer is domiciled.

A due process format for insurers who believe that acommissioner's action is extending beyond the bounds of regulatoryauthority is a point that insurers say they conceptually support.However, the use of arbitration to ensure due process is a remedythat several trade associations said they are still vetting beforemembers.

And, insurers offered language they said would ensureconfidentiality of a company's information so that it would beconsidered "confidential by law and privileged" and "shall not besubject to subpoena and shall not be subject to discovery oradmissible in evidence in any private civil action."

Language in the recommendations offered by insurers encompassesa simple concept of domestic deference that allows a state, if itchooses, to accept the market conduct findings of a state ofdomicile, said Linda Lanam, vice president-annuities with theAmerican Council of Life Insurers, Washington.

But more work is needed to determine how to coordinateexaminations in which a nondomiciliary state, rather than simplyaccepting the work of a state of domicile, wishes to participate inthe exam or to examine compliance with laws or regulations whichmay differ significantly from domiciliary states, she added.

As states adopt the model, the wording providing for optionaldomestic deference will allow life insurance companies to encouragestates to take advantage of the option for life insurers, whosebusiness is more national than state-specific in scope, sheexplained.

Ms.Lanam said that the inclusion of definitions created andoffered by insurers is important for ensuring uniformity if themodel is enacted in a state.

Creation of definitions is important, agreed Scott Cipinko,executive director of the Life Insurers Council, Atlanta. Thereason, according to Mr. Cipinko, is that there can be differentunderstandings for a term, and if a term is defined in a draftingnote, that note might be omitted in some state legislatures.

The goal is to create a new market conduct structure where thereis broad consensus, said Don Cleasby, assistant vice president andassistant general council with the Property Casualty InsurersAssociation of America, Des Plaines, Ill. The PCI organization wasformed by the recent merger of the Alliance of American Insurersand National Association of Independent Insurers.

On the issue of domestic deference, Mr. Cleasby said that it isless clear if it would work for property-casualty companies becauseof the differences in lines of business and geography.

Another area of concern he cited is the referencing of models ofthe National Association of Insurance Commissioners, Kansas City,Mo., in the NCOIL model. NAIC work products such as the MarketAnalysis Handbook are living documents and automatically enactingchanges could be delegating responsibilities of state insurancedepartments to the NAIC, Mr. Cleasby added.

The inclusion of an arbitration provision is something that theNational Association of Mutual Insurance Companies, Indianapolis,supports, according to Dave Reddick, market regulation manager. Itsuse is not designed to be preemptive but to protect companies froma "fishing expedition" during a market conduct review, heexplained.

Uniformity and consistency are goals that are important toachieve in any market conduct model effort, said Laura Kersey,assistant vice president-Northeast region, with the AmericanInsurance Association, Washington.

If a model is to be comprehensive, it should include a dueprocess provision, said Ralph Scott, director of state serviceswith Blue Cross Blue Shield Association, Washington.

If the model is adopted in a number of states and there are moreuniform standards, then there might be more comfort with the issueof domestic deference, he added.