Regulators have historically sought to enhance a customer’s understanding of the products they purchase, imposing prescriptive requirements for disclosure, as well as setting professional standards for sales advisers. The goal is to rebalance the ‘information asymmetry’ – however, issues have continued to arise.
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’ fulfilment 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, USA 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.
Market conduct examinations occur on a routine basis, but can also be triggered by complaints against an insurer. These examinations review:
- Agent licensing issues.
- Types of products sold by the company and agents.
- Agent sales practices.
- Proper rating.
- Claims handling.
- Other market-related aspects of an insurer’s operation.