NAMIC Urges NCOIL to Exempt Internal Audits

An official of a U.S. property/casualty trade association has urged the National Conference of Insurance Legislators (NCOIL) to add exclusionary language to the market conduct surveillance model it is considering. This would reportedly result in internal practice audits because those findings would be exempted from legal scrutiny.

In a letter to the NCOIL Market Conduct Task Force, David Reddick, a State Affairs Manager for the National Association of Mutual Insurance Companies (NAMIC), again urged inclusion of the NCOIL self-evaluative privilege model law in the proposed market conduct model law.

The current NCOIL version contains only a drafting note suggesting that states consider adopting the self-evaluative privilege model.

“NAMIC continues to believe inclusion of this self-evaluative language would create an environment conducive to the conduct of internal self-audits by companies and the reporting of those findings to their domestic insurance regulator,” Reddick said.

The self-evaluative privilege is a consumer protection tool that encourages good market practices. Without the privilege, carriers that critically audit their operations reportedly risk the discovery of their internal findings should legal proceedings ensue. The proposed privilege is intended to protect only findings of the review. Information that is otherwise discoverable in litigation would not be protected.

Reddick said the Association is pleased that NCOIL followed a NAMIC recommendation detailing how market analysis should work by including in its second draft, language creating that function for regulators. “However, we believe this section did not go far enough as the first step in a continuum of activities that ultimately could lead to a targeted, market conduct examination,” Reddick commented.

“We urge NCOIL to explicitly make this connection. This ensures that public policy is clear: market analysis and market conduct exams are merely two components of a broader market oversight process that will be beneficial to consumers,” Reddick noted.

NAMIC reportedly continues to object to provisions that would require insurers to comply with a set of compliance standards and practices, and to a “whistle-blower” provision, because adequate protections already exist through existing laws.

Reddick noted that, while NAMIC is supportive of the NCOIL initiative to codify market conduct regulation, there is some concern that a properly constructed model can be finalized in time for NCOIL’s annual meeting on Nov. 20.

“NAMIC is a strong proponent of moving market conduct reforms forward and is impressed by the leadership and vision NCOIL has displayed. However, this is a bread and butter issue for our companies. They will be critiquing the final product carefully and letting us know exactly how they feel,” Reddick said.