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Insurance Regulation: Common Standards and Improved Coordination Needed to Strengthen Market Regulation

GAO-03-433 Published: Sep 30, 2003. Publicly Released: Sep 30, 2003.
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Consumers of insurance depend on state regulators to ensure that insurance companies are behaving fairly and in accordance with the law. This report evaluates the states' use of market analysis (information gathering to determine issues and identify companies that may need attention) and on-site examinations in market regulation and the progress the National Association of Insurance Commissioners (NAIC) has made in creating more uniformity in the regulation of market conduct.


Recommendations for Executive Action

Agency Affected Recommendation Status
Other NAIC, working with the states, should give increased priority to identifying a common set of standards for a uniform market oversight program that will include all states. These standards should include procedures for conducting market analysis and coordinating market conduct examinations. Further, a mechanism should be established to encourage state legislatures and insurance departments to adopt and implement the identified minimum standards.
Closed – Implemented
In 2004, NAIC passed the Market Conduct Surveillance Model Law, which establishes (1) a framework for market conduct actions, including a process for assessing and prioritizing market problems; (2) commissioner actions to substantiate and remedy significant market conduct problems; and (3) procedures to communicate and coordinate market conduct actions among state regulators. In addition, in 2006, NAIC began implementation of a Market Conduct Annual Statement that involves collecting data from insurers on different factors related to market conduct, compiling industry averages, and sharing analyses of this data with insurers and state regulators. Factors analyzed include the number of claims that do not result in payment to policyholders, the percentage of claims paid beyond 60 days, the ratio of suits opened to claims closed without payment, and the number of complaints per 1,000 policies in force. As of the beginning of 2007, 24 states plus the District of Columbia were participating in the program. The passing of the model law and the implementation of the market conduct annual statement reflect the higher priority given by NAIC to identifying a common set of market conduct standards and a coordinated, uniform oversight program. NAIC's model law program is, in itself, a mechanism to encourage state legislatures to adopt the uniform framework and standards. That is, in passing a model law NAIC is essentially recommending that state insurance regulators promote the passage of such laws within their own states.

Full Report

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