NAIC Pursues Comprehensive Market Conduct Assessment and Perhaps, Consolidation
December 28, 2011 by Elizabeth Festa
A central repository of state market conduct
data? (AP Photo/Nati Harnik, File)
NAIC is addressing the possibility of a central repository of state market
conduct data in its main systems under a 2012 large-scale effort to beef up its
market conduct and consumer protection profile, and make sure states are doing
push comes at a time when the Dodd-Frank Act’s own Consumer Financial
Protection Bureau (CFPB), which still has no director, and although it doesn’t
include insurance complaints, still looms large should there be any major
consumer protection debacle faulting insurance regulation.
regulators were said to be out in force to make sure insurance market conduct
was not under the umbrella of any Bureau during the crafting of Dodd-Frank.
Many consumer financial protection authorities, such as mortgage disclosures,
were transferred to the CFPB on July 21, 2011.
NAIC said that earlier this month, its Market Regulation and Consumer Affairs
Committee sent a survey to state insurance departments to obtain additional
information and create discussion around a number of market conduct topics,
including “reporting of state market conduct data to NAIC systems,” and and the
most cost efficient way to evaluate the marketplace with the growing role of
scattered state enforcement data could then, possibly, come under the purview
of the NAIC’s data collection efforts.
Committee will also be tackling the subject of examination expenses and
mandatory coordination of state examinations, according to a preliminary list
of potential topics it identified.
of course, states conduct their own exams, unless their is a multistate sweep;
they fine companies, and share actions, suspensions or fines and other
enforcement and rebating information via press releases, and/or their websites
–but only if they wish. It is difficult to amass all the enforcement
information, as reporters have tried.
regulators of securities such as the Financial Industry Regulatory Authority
(FINRA) and the Securities and Exchange Commission keep a comprehensive
database enforcement actions on their website for public perusal.
insurers may welcome a central filing point that relieves them of 50 state
filings, if that were even part of the proposal. Many state budgets are stretched,
so the NAIC, with its budget, might be poised to pick up the slack, as it has
been doing with cash-strapped states’ travel needs for insurance commissioners.
One lawyer noted that to have a central system could raise “confidentiality
issues that could be a huge concern to the companies. Also, they might object
to NAIC aggrandizing its power and money,” which is always a sore spot for the
the NAIC may have no choice but to move ahead and strengthen a compliance
reporting system that is hard to navigate and hard to retrieve information from
on a comprehensive basis at the moment.
there have been positive strides made in the area of market regulation over the
last decade, we believe there is room for further improvement,” said Sharon P.
Clark, Kentucky Insurance Commissioner and Chair of the Market Regulation and
Consumer Affairs Committee, in a statement by the NAIC. “A primary goal of this
assessment is to better measure our progress in eliminating unnecessary
duplication of effort and lack of consistency.”
glad to see there is a renewed effort at the NAIC to improve uniformity and
multi-state coordination in market regulation,” said Whit Cornman, a spokesman
for the Washington-based American Council of Life Insurers.
recent ACLI member company survey showed that a lack of uniform implementation
of the laws and regulations governing life insurers remains a high priority
issue…We would support efforts to make the insurance regulatory system more
uniform and efficient,” Cornman added.
NAIC is being both proactive and reactive, some in the industry note,
responding to Dodd-Frank and what it can become, or morph into, should there be
a colossal failure to protect consumers.
The Dodd-Frank Act advocated that states enact annuity
legislation as a consumer protection similar to that outlined in the NAIC’s
“Suitability in Annuity Transactions” model. California, for example,
signed a bill, A.B. 689, in late September that was backed by the
California Department of Insurance and unanimously passed both the State Senate
and Assembly this spring and summer patterned on the one approved by the NAIC.
The Dodd-Frank Wall Street Reform and Consumer Protection Act advocated that
states enact annuity legislation similar to that outlined in the NAIC’s
“Suitability in Annuity Transactions” model.
So far, according to an NAIC chart updated early this
month, about 18 states have enacted legislation mostly consistent with the NAIC
model regulation, others have legislation pending and a couple of states had
legislation waiting to die, while 31 states show no action whatsoever. Some of
those states have legislatures that only meet every other year, or in 2013.
Many of the protections are not yet effective or will be at the beginning of
the year. See: http://www.naic.org/documents/committees_a_leg_prog_suitability_111202.pdf
addition, living benefits annuities is also becoming an important issue,
specifically questions about the “guarantees” associated with these
instruments, as well as disclosure issues being raised by the SEC. Insurance
fraud is a perennial concern among states and for insurers.
the largest market conduct issue that states are responding to now is the
unclaimed property and use of the Social Security Administration’s Death Master
File (DMF). NAIC representatives, including NAIC President Susan Voss, Iowa,
discussed the DMF with Treasury Department official and Federal Insurance
Office (FIO)Director Michael T. McRaith at a recent visit, among other
regulatory issues. In fact, market conduct regulation, exams, reporting, and
market analysis, all in the name of consumer protection, was the key topic of
the discussions on Dec. 7, according to to the summary on the NAIC website.
has been investigating the unclaimed property life insurance issue since 2008,
and the NAIC established a task force in July composed of 10 states that are investing
the issue. There have been inconsistent approaches by the states in dealing
with the mammoth issue.
big insurers are being caught between state insurance regulators and treasurers
and attorneys general, as is happening in New York and Minnesota.
group of state legislators also crafted a model law that some complained was
inconsistent with unclaimed property laws and unfair claims practices law; some
adopted adopted the methodology for doing DMF matches required by the New York
Department of Financial Services while software being used by Verus, is being
used in 38 states to examine the files of insurers after being armed with state
police powers by insurance regulators in those states. At its fall meeting in
early November in suburban Washington, the NAIC heard a report on the issue
from the Center for Insurance Research that recommended certain actions, but it
took no concrete steps at that time to deal with the issue.
are in the process of reviewing the survey sent to them by the NAIC Committee.
The Kansas Insurance Department completed the survey and submitted it today, it
NAIC spokeswoman said the organization will know more about the plan for the
market conduct review after the first of the year when the committee assignments
are made the 2012 charges are finalized.