NAIC Receives Cost Information on Phase 1

December 10, 2003

The National Association of Insurance Commissioners (NAIC) received information at its Winter Meeting in Anaheim from the property/casualty industry concerning the costs incurred by insurers in Phase 1 of the Market Conduct Annual Statement Pilot Project.

The NAIC Market Conduct Annual Statement Working group heard industry concerns that regulators needed to identify for insurers the benefits they have identified in collecting the Phase 1 data and whether the data has resulted in the pilot project meeting its intended goals.

The National Association of Independent Insurers (NAII) said that at least some of the problems that remain could be discussed and perhaps resolved over the next year as companies begin to compile the data needed in the Phase 2 stage of the pilot since the information does not have to be submitted until Spring 2005.

“NAII and the industry still have some concerns about going forward,” said NAII Assistant General Counsel Don Cleasby. “However, since companies will begin to accumulate the Phase 2 data starting in January 2004, we will have the opportunity to address some of the concerns that remain including the fact that the committee said many companies submitted data that contained flaws.”

Cleasby explained that the goal of the pilot project (involving nine states) was to compile and analyze data from companies that could help regulators better identify problems in the marketplace and troubled companies early on. Data submitted is mainly claims and underwriting information such as cancellation and renewal statistics.

The Working group said that in many of the states the information submitted in Phase I of the pilot contained data errors. The Working group sited the example of Ohio where 293 companies submitted data and 100 pieces of information had “data integrity issues.” Many other states were named and most had a significant number of entries that were considered data errors.

The Working group also raised several questions over the results of a cost survey conducted of companies from all the major property/casualty insurance trade associations. The survey examined the cost to companies to provide the data. Regulators questioned the size of the survey and its methodology.

“We will still need to address the problems in the submissions, accuracy of the data in Phase 1 and costs overall during the next year. Hopefully, solutions to the data problems can be found during that time,” Cleasby said.

In other action the Market Analysis Handbook Subgroup adopted its Market Data Analysis Guide during its meeting.

The guide recommends a baseline market analysis program that includes a designated market analysis coordinator position that would be established in insurance departments in each state. In addition, the guide establishes market analysis procedures for identifying companies that may need further analysis based on complaint information.

“The goal is that if every state develops this baseline then other states will feel more comfortable deferring to the judgment of the domestic state on matters of market conduct,” Cleasby explained. Cleasby said that the Subgroup plans to push states to adopt this program during 2004.

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