His advice on how to create a strong market conduct system came at the winter meeting of the National Association of Insurance Commissioners here, where officials are honing a state-based system to police market conduct that they said will create a better safety net for consumers.

Mr. Cluff said an effective market conduct system has three components: a functional and comprehensive market analysis system, targeted examinations for those companies identified through market analysis, and a routine review of a company's internal controls.

State regulators, he noted, are already starting to take steps toward better market conduct oversight.

The issue of domestic deference, he mentioned, is one that insurers, regulators and legislators have been attempting to get a handle on as they create a market conduct system.

The review of insurers' conduct, according to Mr. Cluff, needs to be accomplished by regulators and not industry organizations such as the Insurance Marketplace Standards Association.

While he commended IMSA's work, he added that an IMSA designation may be one factor that a regulator would consider rather than a substitute for regulatory oversight.

Companies do not want additional oversight but "just need to read the papers to realize that in the world we live in today, people look at the way that a company does business. Getting caught doing something wrong costs more," Mr. Cluff added.

Indeed, insurers have expressed general support for a streamlined market conduct system but have also said that any market conduct analysis should result in clear benefits that justify the expense of a data call.

During the meeting, Ohio regulator Sue Stead said that an analysis of data to date suggests that problems are being detected that would not otherwise be found by reviewing available filings. She cited examples of higher than average replacements for several life companies that had been discovered because of the data call.

According to regulators from several states, the first round of a data call for property-casualty insurers indicated that companies were having problems correctly submitting the requested data.

For instance, in Illinois, 112 companies had problems with submitted data compared with 12 companies in the previous year.

Regulators also completed a first draft of a Market Analysis Handbook, a how-to guide for regulators to better develop uniform approaches to market conduct oversight.

Jim Connolly is NU's Life-Health Edition senior editor.