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Market Conduct Regulation

Last Updated 01/16/2020

Issue: In light of the 2008 global financial crisis, regulators and legislators are examining the structure and protections of the financial regulatory system. Increased attention has been on the efficiency and effectiveness of financial or prudential supervision. However, equal attention should also be given to consumer protection, encompassing not just financial supervision but also market regulation and oversight of company conduct.

Overview: An essential component of insurance regulation is the appropriate oversight of the ways insurance companies distribute their products in the marketplace, namely, market conduct regulation (or market regulation). Market conduct—a term commonly used in the insurance industry to describe problems associated with the distribution and sale of insurance—has become a key insurance regulatory focus over the last decade. Insurance regulators view market conduct as critical to ensuring the welfare of consumers and maintaining public confidence in the insurance industry. Market regulation attempts to ensure consumers are charged fair and reasonable insurance prices. It also strives to ensure consumers have access to beneficial and compliant insurance products, and are protected against insurers that fail to operate in ways that are legal and fair to consumers.

Market regulation is regulatory oversight that primarily focuses on regulated entities’ compliance with laws and regulations other than those related to financial solvency. Market regulation complements financial solvency regulation. Problems spotted during a market conduct review can be a precursor to financial solvency concerns. Market regulation also evaluates companies’ fulfillment of contractual obligations to their policyholders and claimants. In a broad sense, market regulation encompasses functions that historically have been performed both within the various state insurance departments, such as rate and form review, producer licensing, and consumer assistance, and those functions that historically have been performed outside of the departments through market conduct examinations and investigations.

The NAIC Market Regulation Handbook provides guidance and encourages uniform market regulation practices. The Handbook is updated annually, keeping current with newly adopted model laws, regulations, bulletins and other relevant materials. States have recently added market analysis as an additional tool to enhance market regulation. The purpose of market analysis is to identify, assess and prioritize market conduct problems that may have a substantial adverse impact on consumers, policyholders and claimants.

Status: In 2011, the NAIC introduced a new Market Conduct Annual Statement (MCAS) collection system to provide states with a uniform data collection system for collecting insurance companies' market-related information. Moreover, the Market Regulation and Consumer Affairs (D) Committee monitors all aspects of the market regulatory process for continuous improvement. This includes market analysis, regulatory interventions with companies and multi-jurisdictional collaboration. The Committee will also review and make recommendations regarding the underwriting and market practices of insurers and producers as those practices affect insurance consumers, including the availability and affordability of insurance.