The organization has put its Market Conduct Surveillance model act draft on a fast track for possible adoption when the full membership meets two weeks from now..

According to NCOIL, a model act enacted by state legislatures would serve to quell criticism that states are not effectively regulating insurers' market conduct activities.

Toward that end, a vote is possible at the organization's Feb. 26-29 meeting in San Antonio.

Legislators involved in the drafting process recently held a discussion with regulators and insurers' representatives.

Carriers support an arbitration provision because they are concerned that a state insurance department has the potential to be a "prosecutor, judge and jury," according to Don Cleasby, assistant vice president and assistant general counsel with the Property Casualty Insurers Association of America, Des Plaines, Ill.

Mr. Cleasby said, in such cases, there is a cost to litigate a dispute. So, there needs to be an avenue of redress that is "short of full scale litigation," he said.

In his view, such a system would not be a delegation of a commissioner's authority because it could only be used if a component of a market conduct review was outside of that authority.

Mr. Cleasby noted that such a provision is in use in Florida. However, NCOIL President Sen. Steven Geller, D-Hallandale Beach, Fla., noted that the language under discussion is a lot broader than the arbitration provision in Florida.

The insurance commissioner in Florida is actually trying to have the arbitration law repealed, Mr. Geller noted.

"I trust you are not saying that if there is a finding of actual wrongdoing, that you should toss out that finding of wrongdoing?" Mr. Geller said.

There are current checks, including a hearing and court process, according to Joel Ario, Oregon insurance administrator and Secretary-Treasurer of the National Association of Insurance Commissioners, Kansas City, Mo.

If arbitration is included in the model, then there is the potential for loss of uniformity because arbitrators could reach different conclusions on similar issues, Mr. Ario added.

Mr. Geller said that if the insurance industry is looking for guidance, arbitration would eliminate guidance established by court decisions that create a precedence of law.

Insurers countered that if an insurance company needs to wait for a year or more before a market conduct report is concluded, there is not proper redress if a commissioner acts outside of his authority.

A question was raised over why arbitration would be after the fact rather than when the exam is in process and any alleged activity exceeding authority is being conducted.

The courts in any state would say that if authority is exceeded, the department could not continue that action, Mr. Ario said.

The issue of a regulator taking action within his authority, but action considered excessive, was also raised by companies.

It comes down to a discussion of who is the appropriate decision-maker, Mr. Ario responded. "You want an arbitrator, and I want a court of law. These kinds of discussions give me heartburn and would give NAIC enormous heartburn."

Arbitration would affect regulatory authority and raise concern among regulators, he continued. Mr. Ario added that there is a "disconnect" on this issue, since many times regulators have been asked to weigh in on cases against insurers. In such instances, he said, the argument put forth is that regulators should be granted more deference.

Mr. Connolly is senior editor with the National Underwriter Life edition.