Regulator Applauds NCOIL Market Conduct Model

By Jim Connolly

NU Online News Service, March 2, 1:58 p.m.EST?A model bill approved Friday by a legislators groupfor use by the nation's legislatures in drawing up insurer marketconduct regulations has received a positive reception from a keystate regulator.[@@]

It is a "solid" and "promising" work product for market conductregulation, said Joel Ario, Oregon insurance administrator andsecretary-treasurer with the National Association of InsuranceCommissioners, Kansas City, Mo. Mr. Ario has spearheaded the NAIC'smarket conduct reform efforts.

His reaction followed the National Conference of InsuranceLegislators' unanimous adoption of the Market Conduct SurveillanceModel Act at their meeting last week in San Antonio.

The model provides a regulatory framework for market conduct andanwers criticism over state regulation, said Tim Tucker, NCOIL'sdirector of state-federal affairs.

He added that the model offers a step-by-step approach,providing a continuum that uses market analysis and progesses to amarket conduct examination when needed.

The model follows most of the concepts being discussed at theNAIC, is driven by a market analysis approach that targetsproblems, and uses NAIC databases to achieve analysis, he added. Itwill receive expedited consideration at the NAIC starting at itsspring meeting in New York, March 13-16, Mr. Ario said.

State legislators looked at four issues before the unanimousvote was taken. They removed a provision that would have requiredCEOs of insurance companies to certify that there are appropriatemarket conduct procedures in place and language that would haveincluded an arbitration process if an insurer was dissatisfied withthe outcome of a market conduct examination.

The issue of restitution was not included in the model andlanguage that referenced work products, including model laws andregulations developed by the National Association of InsuranceCommissioners, Kansas City, Mo., were left in the model.

Mr. Tucker said the next step for NCOIL will be to educatelegislators about why the model should be adopted. He said thatNebraska has introduced the model and held a hearing, and willadvance the completed model before its legislature. Other statescould conceivably introduce the model in this legislative session,he continued.

Prior to the model's adoption, legislators indicated that theissue of a CEO certification could be raised in other NCOIL workingcommittees if needed and was not necessarily central to the issueof market conduct, according to Mr. Tucker.

The issue of arbitration., which has been used in Florida in thecontext of rate setting, was something that could be examined in abroader regulatory context if needed, he added.

A provision that would reference NAIC work products will nowinclude a process by which notice would be given if there is amaterial change in NAIC standards and a hearing could be held, hesaid.

Insurance groups including the American Council of LifeInsurers, Washington, and the National Association of MutualInsurance Companies, Indianapolis, expressed preliminary supportfor the adopted model.

As it was adopted by the state-federal relations committee, themodel would bring consistency, efficiency and cost-effectiveness tomarket conduct oversight, but offers no teeth, according to LenoreMarema, a PCI representative with the Property Casualty InsurersAssociation of America, Des Plaines, Ill.

PCI is glad that NCOIL will continue to consider due process,but said that if the model is adopted in states as it is currentlywritten, "it will be half a loaf. What happens when an examineracts outside parameters. There is no remedy."

Kevin Hennosy, a consumer advocate and publisher ofSpreadtheRisk.org, Kansas City, Mo., also is expressing support forthe newly adopted model because it creates a system for marketconduct regulation. The model benefits consumers and strengthensstate regulation, and should be looked at by Congress when it takesthe issue up, he continues. It uses a targeted, step-by-stepapproach, Mr. Hennosy added.

In other action, NCOIL approved a Property/Casualty Flex-ratingRegulatory Improvement Act model as an interim step while statesadopt the 2001 NCOIL Insurance Modernization Act, which wouldprovide a use and file law for insurance rates in personallines.

The flex model requires that insurer rate filings cannot exceedan overall statewide rate increase or decrease of 12 percent in theaggregate for all coverages.

Robert Zeman, a PCI senior vice president, said the flex modelmay serve as a "transitional mechanism" as states move toward opencompetition.