Insurance Industry Needs Better Consumer Service

By Serena Lynn, Editor, CCH FOCUS

onsistent with consumer protection in the banking and securities industries, state insurance legislatures need to adopt a consumer protection system that emphasizes efficiency, remediation and better service to consumers, according to the National Association of Mutual Insurance Commissioners.

The appeal was made in a 38-page paper entitled “Market Conduct Regulation for a Competitive Environment,” which examines the consumer protections used in the financial services industry and recommends improvements in market conduct regulation for the insurance sector. “With this paper, NAMIC begins to suggest answers to genuine concerns about consumer protection in a purely competitive pricing and service system,” said Roger Schmelzer, NAMIC vice president-regulatory affairs.

The paper compares the consumer protections afforded by the regulatory models in insurance, banking and securities, providing significant insight into how regulatory reform of the market conduct process can be achieved, according to NAMIC.

The paper concludes that, while consumer protections in the insurance industry are as important and as comprehensive as those in the banking and securities industries, regulation through a state regulatory system imposes costs on insurers that are ultimately borne by consumers. As such, a regulatory system that promotes uniformity but retains state enforcement would benefit the insurers and policyholders.

A NEW MARKET CONDUCT PARADIGM

“Market Conduct Regulation for a Competitive Environment” recommends a new system of implementing more uniform and efficient consumer protection provisions through application of the market conduct examination process. According to NAMIC, reform of the market conduct process should have two primary goals:

Increasing regulatory efficiency through a model patterned after the current financial examination system where the state of domicile assumes responsibility for coordinating market conduct examinations conducted on its domestic insurers leading to reduced costs to insurers; and
Implementing a remediation program to ensure that insurers are fixing problems and altering untoward practices to improve service to consumers and that regulators are imposing enforcement sanctions as a last resort.

COMPETITIVE ENVIRONMENT

In the spring of 2000, NAMIC released a report which noted that a critical mass of activity is pushing policymakers in the direction of creating more uniform insurance regulatory procedures and greater consistency of state standards.

While uniformity remains important, NAMIC feels getting products to consumers as quickly and economically as possible is the pressure point for insurers. Prior approval is time-consuming, costly and denies consumers the advantages of new and improved risk-sharing vehicles. It also compromises the ability of insurers to compete with other segments of the financial services industry that are regulated differently.

Some advocate a federal solution to overcome the inefficiencies inherent in state government approval of pricing and services. NAMIC still believes that open competition can be accomplished in the existing state model of insurance regulation. NAMIC member companies believe that competition is the answer, preferably within the state regulatory framework. Allowing rates and forms to be determined by the marketplace will transform the industry and should eliminate many concerns of those who favor federal regulation, according to NAMIC.

To reach for anything less than fundamental public policy reform when the pressure for change is at its highest would at least be a miscalculation of the possibilities for change. For certain, it would be insufficient to discourage efforts to secure federal regulation of the insurance industry, NAMIC said.