Some members of the Kansas City, Mo.-based NAIC are expressing the opinion that insurance commissioners should not be asked to give up tools they already have to make sure good market conduct practices are followed.

The discussions raised the issue of whether requirements under the Market Conduct Surveillance Model Law, originally developed by the National Conference of Insurance Legislators, would be in conflict with existing state laws.

A definition in the model of examinations that target individual insurers may contravene state statutes, one regulator suggested. In response, Joel Ario, NAIC secretary-treasurer and administrator of the Oregon insurance department, responded that it would not if the exam was not a part of a market analysis required by the model statute.

A question was also raised over what a regulator would do if a state requires insurance company examinations every 3-5 years and the new model language has triggers that target individual companies.

Mr. Ario in response said that the new law would supplant existing law regarding market conduct oversight.

But, Joel Laucher, a California regulator, said that he thought the wording in the current draft did not preclude examinations other than targeted examination tied to market conduct analysis from being conducted.

Mr. Laucher noted that John Garamendi, California insurance commissioner, would not support "any law that would tie his hands and have him do less than he does now."

Texas Commissioner Jose Montemayor, however, said that he did not believe that the model would diminish his authority to act and said that he supports the current draft.

Mr. Laucher explained that problems do not necessarily show up in consumer complaints and that a commissioner needs all remedies available to prevent abuses.

For instance, he cited the case of a fraternal insurance society in which tens of thousands of dollars in interest was not paid in life insurance benefits. "There had never been a complaint filed, and we do not want to be restricted by a market analysis framework."

Michael Hessler, an Illinois regulator, agreed. "There are certain companies that have to be looked at time and time again because there are problems over and over again."

Birny Birnbaum, executive director with the Center for Economic Justice, Austin, Texas, argued that in such a case that pattern would establish a market analysis reason to examine the company.

Not using market analysis to target exams might find situations such as the fraternal society in California but may result in efforts not being devoted to larger abuses, he explained.

The due process an insurer would have to question examinations it considered excessive or unfair was also raised with concerns expressed that language requiring the use of the least intrusive, appropriate means for examining market conduct issues.

Lenore Marema, vice president-regulatory affairs with the Property Casualty Insurance Association of America, Des Plaines, Ill., said that "states need to know that this is about change" and that they really cannot continue to "accommodate each others' variances."

She said that she doubted that with the changes being discussed PCI members would support the NAIC's draft model. It would leave no remedy if regulators acted outside of the normal boundaries of market conduct authority, Ms. Marema said. The NCOIL model is "best left as is."

Mr. Connolly is a senior editor with NU Life-Health edition.