Market Conduct

  • The NAIC Examination (A6) Subcommittee, in 1974, recommended the establishment of a "separate and distinct" program of surveillance to ensure fair treatment of policyholders.
    • Thus was "market conduct" born.
  • The term "market conduct" has, however, fallen upon bad times. 

1991-2A, NAIC Proceedings

  • (p13) - Terri Vaughan (NAIC-CEO / IA)
    • The first thing I want to say, I agree with Professor Schwarcz that the level of our collaboration in market regulation is behind the level of collaboration in solvency regulation and that is something we have been working on for a number of years, to try to increase the collaboration.  

2011 0914 - GOV (Senate) - Emerging Issues in Insurance Regulation - Senator Reed (D-RI)   ---   [BonkNote]  ---  [PDF-51p,  VIDEO-Senate] 

  • No one could deny that State insurance commissioners have a poor record when it comes to market conduct oversight of the insurance industry, and consumers have been abused as a result.
  • We could go through many examples.  (p13)

It is hard to fix a system that has not been analyzed.  (p14)

  • There should be suitability rules in place, particularly for cash value life insurance policies to assure that sales of proper products are made.  (p14)

--   J. Robert Hunter, Director of Insurance, Consumer Federation of America  

2003 0506 - GOV (House) - Increasing the Effectiveness of State Consumer Protection, Sue W. Kelly (R-NY)  ---  [BonkNote]

  • (p8) -  Our job is to follow those complaints and address them in our marketplace and make that marketplace work for consumers at the local level.

NAIC - Joel S. Ario, Insurance Administrator, Oregon Insurance Division, Secretary Treasurer, National Association of Insurance Commissioners

2003 0506 - GOV (House) - Increasing the Effectiveness of State Consumer Protection, Sue W. Kelly (R-NY)  ---  [BonkNote]  ---  [PDF-123p, 

  • 1998 - SOA - Market Conduct: A New Actuarial Frontier, Society of Actuaries - 20p
  • 1998 - SOA - Market Conduct Issues for Product Development Actuaries, Society of Actuaries - 27p
    • Summary: Market conduct issues are perhaps one of the most serious facing the life
      insurance industry today. How did we get to this point? And more importantly,
      what actions are companies taking to address these issues?
  • They have market conduct studies. They should have caught this. They go in with these market conduct and financial investigation studies and they catch nothing.
  • The same thing happened with life insurance abuses a few years ago, when Prudential and all ended up having to pay billions because of lawsuits. They don’t catch anything.  (p40)
    • [Bonk: They = States / NAIC]

--  J. Robert Hunter, Director of Insurance, Consumer Federation of America 

2004 1116 - GOV (Senate) - Oversight Hearing on Insurance Brokerage Practices, including Potential Conflicts of Interest and the Adequacy of the Current Regulatory Framework, CSPAN (Insurance Brokerage and Regulation Practices) - [PDF-166p, VIDEO-CSPAN] 

  • (p12) - Daniel Schwarcz (Associate Professor, University of Minnesota Law School:
    • So, notably, you will see that my testimony was focused on different issues than many of the other witnesses, and that is because it is true that solvency regulation is in many ways the core of insurance regulation.
    • Now, I say this to contrast it with market conduct and other forms of consumer regulation.... 
  • (p13) - Terri Vaughan (NAIC-CEO / IA)
    • The first thing I want to say, I agree with Professor Schwarcz that the level of our collaboration in market regulation is behind the level of collaboration in solvency regulation and that is something we have been working on for a number of years, to try to increase the collaboration.  

2011 0914 - GOV (Senate) - Emerging Issues in Insurance Regulation - Senator Reed (D-RI)   ---   [BonkNote]  ---  [PDF-51p,  VIDEO-Senate] 

  • 1995-4, NAIC Proceedings - Market Conduct Regulation Guidelines Working Group of the Market Conduct and Consumer Affairs (EX3) Subcommittee, November 13, 1995 - 6p
    • 1995-4, NAIC Proceedings - 1995 1205 - Attachment Four-A - NAIC Market Conduct Regulation Guidelines, Final Draft: Dec. 5, 1995
      • ...market conduct regulation deals with the treatment of people.
  • 2008-3v1 - Consumer Protections and Innovation (D) Working Group
  • VIETNAM DELEGATION MEETS WITH NAIC EXPERTS IN KANSAS CITY
    • Tim Mullen, NAIC's Director of Market Regulation, provided a presentation on agent professionalism: licensing, training, administrating and requirements for agents who sell universal life products and variable life products.

2008-2, NAIC Proceedings

  • Public interest in various aspects of insurance regulation has risen and fallen over its history, but one area that has remained obscured is market conduct regulation.

2001 - JIR / NAIC - An Assessment of Insurance Market Conduct Surveillance, Vol. 20, No.1, by Robert W. Klein, James W. Schacht - 44p

More complex products sold to individual consumers (e.g., universal life policies) tend to generate more market conduct problems than simple products (e.g., term life insurance).

2003 0701 - NCOIL - The Path to Reform –The Evolution of Market Conduct Surveillance Regulation -  Prepared for the Insurance Legislators Foundation by PricewaterhouseCoopers LLP and Georgia State University - 117p

 

  • A recent class action suit against Prudential Insurance Company provides further evidence of the need for enhanced market conduct regulation.
  • More than eight million claimants from all fifty states and the District of Columbia alleged fraudulent and deceptive sales practices against Prudential.234
  • The first exposure of Prudential’s illegal activities began early in 1994 when the first lawsuits were brought against it.235
  • The New Jersey insurance commissioner organized the Multi-State Task Force on April 25, 1995, to conduct an examination of Prudential’s sales practices.236
  • The Task Force issued its report in July 1996 and cited widespread evidence of fraudulent sales practices by agents, evidence of management’s knowledge of those practices, and failure to investigate or discipline violators.237
  • State regulators failed to detect ongoing, widespread fraud and failed to act until prompted by the plaintiff’s bar and the media exposure of Prudential.238

1999 - LR - Insurance Regulation in the United States: Regulatory Federalism and the National Association of Insurance Commissioners, by Susan Randall - 77p

  • Mr. DeAngelo (Commissioner-NJ) said he did not recall seeing incorrect or misleading training materials, so this is somewhat a theoretical question.
  • Mr. Hanson responded that he had seen misleading materials in market conduct examinations. 

1999-4, NAIC Proceedings

  • In its June 7, 1994 Consent Order #94-102, the NJDBI cited N.J.S.A. 17B:30-3 and N.J.A.C. 11:2-23.4 and subsequently fined MetLife $965,555 for MetLife’s practice of misrepresenting life insurance to be retirement or savings plans, particularly in advertisements sent to nurses and other professionals. 

1998 / 2003 - Report of the Metropolitan Life Insurance Companies located in New York, New York as of December 31, 1998. By Examiners of the State of New Jersey Department of Banking and Insurance Division of Enforcement and Consumer Protection Market Conduct Examination Unit - 44p

  • UNFAIR TRADE PRACTICES ACT - MDL-880
  • MARKET CONDUCT SURVEILLANCE MODEL LAW - MDL-693
  • MARKET CONDUCT RECORD RETENTION AND PRODUCTION MODEL REGULATION - MDL-910
  • Schwarcz / Vaughan - GOV- Emerging Issues?

ATTACHMENT FOUR-A - NAIC Market Conduct Regulation Guidelines - Final Draft: Dec. 5, 1995

It is apparent that consumers place strong emphasis on market conduct regulation.

  • Dissatisfaction with perceived market practices has been the driving force behind the initiatives in a number of states.
  • It was a reaction to the constriction of the insurance marketplace in 1985-1986 that caused many to criticize the effectiveness of state regulation and call for federal involvement.
  • Consumer demands continue to place emphasis on this form of regulation.

1995-4, NAIC Proceedings

Problems spotted during a market conduct review can be a precursor to financial solvency concerns. 

 content.naic.org/cipr_topics/topic_market_conduct_regulation.htm

Legal Actions

  • Monitoring of litigation may alert regulators to issues that the regulatory system has not yet addressed.

2008-3, NAIC Proc. 

  • c. Adopt Recommendation for Market Conduct Examination Oversight (EX3) Task Force as NAIC Standing Technical Committee
    • Commissioner Weaver asked Mr. Chartrand to review the proposal.
    • This need is particularly important as the subcommittee would continue to focus on issues of policy, law and model legislation while the new task force would be concentrating on matters directly related to the examination processes.
    • Mr. Synnott replied that he concurred and that he had already been approached by members of the industry interested in serving on such an advisory committee.

1991-1A, NAIC Proceedings

  • A preliminary meeting of the Market Conduct Task Force was held at the Zone III meeting in Springfield in October.
  • At that meeting there was a general discussion of the objectives which the task force should pursue.
  • A number of possible areas for consideration in regard to market conduct examinations were mentioned, including the following:
    • 1. Examination funding standards,
    • 2. Examination skills relating to market conduct, for example, development of uniform standards to test market conduct performance,
    • 3. Revision of the NAIC Market Conduct Handbook,
    • 4. Creation of a system for surveillance of claims handling,
    • 5. Establishment of an "Annual Statement" for market conduct or some form of annual performance statement,
    • 6. Inquiry into alleged abuses of the market conduct examination process and ways to correct or prevent such abuses,
    • 7. Development of a questionnaire to survey Regulators and industry about concerns with market conduct examinations.  (p317)

1981-1, NAIC Proceedings 

  • Responding To Market Conduct Problems (Section VI)
    • Self-Audits
    • States may monitor company self-audits.
    • "Best practices" organizations or independent standard-setting organizations, such as IMSA in the life insurance industry, promote self-audits or self-evaluative activities and mandate corrective actions on the part of their members.

2005-2, NAIC Proc.