The Role of Market Analysis

Oregon Insurance DivisionMarch 8, 2004

Introductions

• Joel Ario, Insurance administrator• Jann Goodpaster, Market Regulation

Manager• Gayle Woods, Rates and Forms

Manager• Pat Neesham, Market Analysis

Manager• Cindy Jones, Investigations Manager

Overview

Joel Ario

DCBS Goals

• Protect consumers • Support a positive business climate • Be accountable to the public• Provide excellent customer service

Insurance Division Goals

• Ensure financial solvency• Ensure fair treatment of

consumers• Be accountable to the public• Provide excellent customer service

Organizational structure

• Financial Regulation--analysis, exams

• Market Regulation-- analysis, exams, investigations, rates and forms

• Consumer Services--consumer complaints, producer licensing

Guiding Principles for Market Regulation• Identify real problems• Proportional response• Interstate Collaboration

Identifying Real Problems

• Market analysis as foundation of regulatory program

• Responds to industry and consumer critiques

• Primary tools: complaints, annual statement data

• New tools: handbook is a work in progress• Creative approaches on case by case basis

Proportional response

• Continuum of regulatory actions • Less intervention is better than

more • More efficient use of limited

regulatory resources• More effective way to solve

problems • Ready to escalate where necessary

Regulatory Actions to Access Problem• Insurer interviews• Targeted surveys and data calls• Policy and procedure reviews• Interrogatories• Desk audits and review of self

audits• Targeted exams

Regulatory Actions to Correct Problems• Goal is compliance• Education and proactive outreach• Corrective plans• Remediation and restitution• Enforcement actions

Role of exams

• Past: comprehensive, domestic focus

• Current: targeted, uniform procedures, market impact focus

• Future: analysis-driven, collaborative, other options

• Exams will always be necessary• Domestic deference???

Interstate collaboration: short-term • Consider other states’ work • Bring interstate issues to MAWG• Support collaboration wherever

possible

Interstate collaboration: long term • Oregon can’t monitor 1500 companies• Need systematic allocation of

responsibilities • Domestic deference may be answer • Requires agreement on baseline

responsibilities of each state • Targeted exams for cause by non

domestic states

NCOIL Model

• Analysis driven• Continuum of regulatory responses• Targeted exams• Uniform procedures• Participation in NAIC databases• Collaboration through NAIC

Market Analysis & Market Conduct• Jann Goodpaster• Pat Neesham

The Goal

• Follow up with company as early as possible to ensure that concerns are adequately addressed before small problems become large problems

• Responses are proportional

Role of Market Analysis

• The Umbrella for Market Regulation functions

• Coordination of Market Regulation Functions

• Intra-departmental communication

History of Market Analysis

• Case by Case problem solving• Company Profiles• Broader market surveillance

Complaint data

• Rich data mine• Complaint information is more

indicative of problems in the P&C and health lines of business than in life.

• Coding becoming clearer and more meaningful

Case by Case Analysis

• Problem solving• From consumer advocates,

managers, agents, consumers, other agencies

• Initial investigation• Recommend further action• Communicate your results to the

entire division

Company profiles

• NAIC Market Analyst Handbook– Complaint data– Financial

information– Market share– Jumpstart report

• Oregon information– Rates & Forms– Other company

filings– Legal actions– Policy team info– Best guide– Internet information– Correspondence

The checklist

• Designate a Market Analysis Coordinator:– Pat Neesham– Principle liaison with MAWG– Responsible for communication with

other work units in the Division– Responsible for baseline analysis of

key lines of business

Checklist continued

• Establish a systematic interdivisional communication program, surveying other work units on a least a quarterly basis– Quarterly meetings– Policy teams– Roundtable

Checklist continued

• Identity key lines of business• P&C: Personal auto and

homeowners, hard markets• Life and Health: Group life and

health, individual life, health and annuities

Checklist continued

• Identify companies with a significant market activity in each identified line with:– 1% or more of the market share (from

annual statement)– $100,000 or more in premium (from annual

statement)– 5 or more complaints (from annual complaint

reports)– or domestics

Checklist continued

• Review identified companies by:– Calculating and compiling complaint

indices for each company– Review the state page from annual

statement with attention to volume, loss ratio, and where applicable reserves and defense cost

Checklist continued

• Identify priority companies for further analysis based on:– complaint activity, – referrals from

MAWG or other states

– significant changes or anomalies in reserves

– significant changes or anomalies in defense costs

– unusual loss ratios– major

participation in non or over competitive market sectors

Checklist continued

• Report all significant findings to MAWG

• Consult with MAWG & other States to determine their experience with specific companies

• Must notify MAWG if it is a national significant company

Market Analysis Handbook

• Market Analysis Handbook was developed for states to:

• Implement a market analysis programs

• Assist states to optimize Department resources

• Eliminate duplicative inquiries• Enhance interstate collaboration

Market Analysis Handbook Cont• Handbook includes:• Outline of elements and

objectives• Guidance for staff as they

implement programs

Market Analysis Handbook Cont• Handbook applies a uniform

method of analysis• Develop understanding of its

marketplace• Target companies with market

conduct problems

Market Analysis Handbook Cont• Resulting analysis provides

indicators of insurers with unusual results

• Screen and follow-up with insurers• Focus resources on insurers with

potential problems

Market Analysis Handbook Cont• Handbook is an evolving document• Ongoing discussions• Additional sources of data added

Market Analysis Handbook Cont• Initial version of handbook• Information companies

already report• Information regulators can

readily access

Market Conduct Exams

• One of many tools• Emphasis on targeted

examinations as indicated by market analysis

• Use of uniform outline

Uniform Examination Outline• Scheduling

– Prioritize exams through analysis– Call all examinations using the ETS– We will enter examines into the ETS

60 days prior to the examination

Outline continued

• Pre examination planning– Internal planning consisting of

information from market analysis as well as NAIC examination jumpstart report

– Plan becomes part of workpapers– Announced to company 60 days in

advance– Resource list 30 days in advance– Standardize data calls

Outline continued

• Examination procedures– pre examination conference– Communication with company– Document handling procedures– NAIC sampling guides– Exit conference– Use of standards for testing

Outline continued

• Exam reports– Standard format used in the NAIC

handbook– Timely reports– Inclusion of company’s response– Reports become public– Follow up procedures

Collaborative exam efforts

• MAWG• Privacy• Credit Scoring• ICE exams

Investigations

• Cindy Jones, Manager

Role of Investigation in Market Regulation• Participate in examinations with

examiners• Part of the continuum of responses• Rapid response• Efforts at NAIC to identify best

practices

Investigations

• Source of Referrals:

•Consumer Advocates•Private Citizens•Insurance Agents•Insurers•Other State Agencies

Factors Considered in Opening Case Files

• Violation of Insurance Code• Violation of Administrative Rule• Harm to Consumer• Seriousness of Violation• Age of Violation

Types of Agent Investigations

• Misappropriation of Premium• Misrepresentation• Trust Account Violations• Fraud• Forgery• Life Insurance Replacement• Failure to Respond

Possible Actions

• Letter of Warning

• Referral to Enforcement Unit for Administrative Action

• Referral for Criminal Prosecution

Rates and Forms

Gayle Woods, manager

The Role of Rates and Forms in Market Regulation• Staff review policy

forms and premium rates to ensure that:– Policy provisions are

fair to consumers and in compliance with Oregon’s laws and regulations

– Premium rates and reasonable in relation to the coverage provided

– Policy language and sales materials are clear and understandable

– Competition among insurers is fair and on a sound financial basis

Speed to Market

• SERFF• Rate and form filing checklists and

review standards• CARFRA• Interstate compact• Filing Submission Uniformity/Metrics• Self Certification Pilot Program• Product Locator

Rates and Forms

• In 2003 Rates and Forms finalized 10,998 filings, of which approximately 10% were received through the SERFF system

Rates and Forms

• Website• Filing Seminar• E-Notify• Changes in Rates and Forms

Summary

• What do we hope to accomplish?

Goals of Reorganization

• Integrates Market Regulation functions

• Increases communication between front end and back end regulation

• Provide better customer service

Addressing issues on a broader basis• Through rule making, legislative

changes, and NAIC model laws.• Examples-

– Law has not kept pace with changing conditions.

– The practice is technically legal but harmful to consumers.

– Marketplace disruptions

Coordination of market regulation information• Monitor insurance companies

compliance with laws• Identify practices that negatively

impact consumers• Focus resources on insurers with

potential market conduct problems

Intra departmental communication• Routinely gather and distribute

information between all units• Become the storehouse for

information using Teammate and other vehicles

Changes to the Market Regulation in Oregon• March 1, 2004 all examiners and

analysts report to Market Analyst manager

• Except for examinations already called, no more routine examinations

• All examinations must be called as a result of analysis

Impact on Insurers

• More communication• Many companies will be assigned

to a specific analyst• Less intrusive examination• Rapid response