Creating a Market Analysis Program

Washington State
Office of the
Mike Kreidler-Insurance Commissioner
Insurance Commissioner
Creating a Market Analysis Program
HB 1532 SB 5717
Background
State insurance regulators oversee the market conduct of insurance companies doing business
in their state. However, there is very little uniformity in how this oversight is conducted.
Under current state law, the Office of the Insurance Commissioner (OIC) must examine the
market conduct of insurers at least once every five years. A market conduct exam involves an
on-site review of records and practices relating to sales, advertising, underwriting, complaint
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handling, claims, rating and administrative procedures of insurance companies.
In an effort to modernize the regulation of insurance and create a more uniform approach to
market conduct oversight, the National Association of Insurance Commissioners (NAIC) is
promoting a new process called Market Analysis. This profound change to the regulation of
market conduct is being driven at the national level in order to better focus limited resources
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on consumer protection.
Our adoption of this new program will modernize our market conduct oversight approach
and will enhance our ability to protect consumers when problems arise. By relying on Market
Analysis, and not the 5 year exam cycle, the OIC will discover and respond to marketplace
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issues as they occur.
The Market Analysis approach calls for an annual review of data covering all companies
doing business in a particular state. Analysis of this data is used to understand the current
marketplace in a state, and to point out those areas where regulatory intervention may be
needed. There are many ways this intervention could take place including a more indepth
review of company data, a market conduct examination or participation in a multi-state
examination effort.
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The problem
Currently, there is no standard approach to market conduct examination of insurance
companies. Some states perform intensive reviews while others conduct very limited exams.
And some states fail to perform even the most minimal market oversight of their domestic
insurers. This inconsistent approach to regulation has created an adversarial environment
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between companies and regulators, mistrust among the states and increased potential harm to
consumers.
As with other states, Washington’s market conduct examinations are retrospective. This
means that any problems we uncover during an exam most likely occurred in the past and
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the consumers have already been harmed. We need the ability to uncover potential problems
before they become pervasive within a company and potentially within the market.
Solution
Establish a Market Conduct Oversight program that enables the Insurance Commissioner to
conduct a standardized review of every authorized insurance company annually through a
structured Market Analysis program. Under the new program, the OIC would be able to direct
resources toward finding problem insurers and issues as they occur and focus on correcting
specific regulatory violations before consumers are harmed.
Office of the Insurance Commissioner – 2007 Legislation

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Under a Market Analysis approach, there are several levels of review that help focus
regulatory resources. The first level provides a cursory review of how insurers are
performing and helps uncover which insurers need a closer review. The next two levels are
more indepth and help uncover which companies, if any, require additional action. This
allows the commissioner to select the least intrusive and most cost-effective market conduct
action necessary to protect consumers.
Through Market Analysis, the OIC would coordinate examination efforts with other
states and review market data in a timelier manner. Market Analysis provides methods for
monitoring the state’s insurance marketplace by identifying trends and changes in market
activity and will allow us to focus our resources on identifying and resolving problems which
could potentially harm consumers.
During the 2006 legislative session, supplemental budget funding was approved to begin
the implementation of the Market Conduct Oversight program. Funding in the 2007-09
biennium is needed to fully implement the program.
Summary of the proposed legislation:
(Based on the NAIC Model Act)
• Provides list of regulatory activities to address marketplace issues and concerns - This
non-exclusive list of “tools” allows OIC to choose the most appropriate, least intrusive
means of addressing identified marketplace issues.
• Will eliminate the need for 5-year cycle of market conduct examinations for domestic
insurers when program is fully implemented – Examination authority is retained as one
of the listed tools for use based on reasoned analysis rather than on timing.
• Provides domestic deference to states with comparable regulatory scheme – Deference
allows OIC to accept market analysis activity by comparable states on general or
common regulatory matters, while preserving OIC authority over strictly local market
issues.
• Provides confidentiality for insurer documents in the possession of the Commissioner
– Confidentiality encourages insurers to freely share internal assessments with OIC,
reducing costs for both the insurer and OIC.
• Establishes qualifications and immunity of market conduct oversight personnel – Listed
qualifications assure insurers that market conduct oversight personnel understand
insurer operations before opining on insurer activity. Immunity allows market conduct
oversight personnel to objectively analyze and report on marketplace activity without
fear of reprisal. Both of these issues assure better consumer protection.
• Outlines procedures to communicate and coordinate market conduct actions amongst
state insurance regulators to foster the most efficient and effective use of resources.
Updated: 12/18/06
Mary Clogston-Legislative Liaison • (360) 725-7101 • marycl@oic.wa.gov
Office of the Insurance Commissioner – 2007 Legislation

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