Tim Tucker, director of state-federal affairs for the Albany, N.Y.-based NCOIL, said the legislators group supports the findings in the GAO study and is seeking to meet that goal with a Market Conduct Surveillance Model Law.

The latest draft of that NCOIL model was released last Friday and was scheduled for discussion.

The GAO report also recommends that the National Association of Insurance Commissioners based in Kansas City, Mo., "give increased priority to identifying a common set of standards for a uniform market oversight program that will include all states."

The NAIC for its part has been working on streamlining market conduct procedures for over two years.

The GAO report cited the broad number of ways that states are monitoring market conduct activities of companies.

For instance, it cited NAIC data that indicates that in 2001, 15 states did targeted examinations; four, comprehensive exams; and, 22 did both.

A targeted exam looks at a particular aspect or problem related to market conduct issues while a comprehensive exam looks at all of a company's market conduct activities.

The GAO report also found that of the nine states participating in an NAIC market conduct pilot, with the exception of California and Ohio, on-site examinations were performed on less than two percent of the states' licensed companies in 2001.

The report found that market conduct examinations differed widely. For example, of 25 companies, 19 had been examined at their offices a total of 106 times during a three-year period. Six had been examined one or two times over the three-year period, and seven others had undergone three to five examinations.

But two companies of those responding to a GAO question had not been examined since 1997, and four others had not been examined.

The report said a lack of a consistent approach was slowing more effective market conduct oversight.

Mr. Tucker at NCOIL said a model law will help create more uniformity.

Two points of concern expressed during a public hearing in September on the NCOIL model are among the issues that were addressed in the latest draft.

Insurers had expressed concern over a provision establishing an association reviewer. They noted that the term was undefined and created the possibility of another layer of regulation.

In the draft the use of a reviewer with the title of associate market analyst is now limited to when a commissioner believes a company's practices "create a substantial threat" to the public.

Additionally, the new draft states that an insurance department must actively manage costs including costs associated with qualified contract examiners.

It also states that the department has responsibility to protect the confidentiality of books and records used during market conduct examinations.

The GAO report bears out the need for improvement of state market conduct oversight, says Bruce Ferguson, senior vice president-state relations with the American Council of Life Insurers, Washington.

Responding to a question, Mr. Ferguson said at this point meaningful market conduct changes have not been produced.

He noted that the fact that the GAO report does not reference federal oversight does not mean that there is no interest. In fact, according to Mr. Ferguson, it could be quite the opposite. The document's purpose was to understand market conduct regulation today, a base which could be used to decide if federal oversight is needed in the future, he continued.

The NCOIL draft is a step toward a market conduct system that would also include best practices implemented by regulators, according to Mr. Ferguson.

Of the latest draft, he said language outlining what triggers a market conduct exam should also reflect what mitigates the need for such an exam, such as participation in a self-regulatory system.

The issue of accountability for costs is positive, but should be taken a step further, he said. It should require regular itemized billing for costs, Mr. Ferguson added.

And, he said, the draft should include a due process provision that would allow an insurer to question a market conduct finding before it was publicly released.

The issue of due process was also raised by Don Cleasby, assistant general counsel and assistant vice president with the National Association of Independent Insurers, Des Plaines, Ill.

It is important that insurers be able to establish their own compliance systems rather than have a system mandated, Mr. Cleasby added.

The mandate that departments oversee costs related to an examination is also an improvement, he said.

Mr. Connolly is senior editor with National Underwriter Life-Health Edition