Insurance Market Conduct Surveillance Act

Draft

Insurance Market Conduct Surveillance Act

Insurance Market Conduct Surveillance Act

Table of Contents

Section 1 Short Title

Section 2 Purpose and Scope

Section 3 Definitions

Section 4 Immunity

Section 5 General Powers and Duties of Commissioner

Section 6 Relations with Other States

Section 7 Market Analysis Procedures

Section 8 Examinations

Section 9 Confidentiality

Section 10 Market Conduct Surveillance Personnel

Section 11 Sanctions

Section 12 Severability

Section 13 Rule Making Authority

Section 14 Effective Date

SECTION 1. SHORT TITLE. This Act may be cited as the Insurance Market Conduct Surveillance Act.

SECTION 2. PURPOSE AND SCOPE.

(a) The purpose of this Act is to establish a framework for department market conduct actions, including:

(1) processes and systems for identifying, assessing, and prioritizing market conduct problems that have a substantial adverse impact on consumers, policyholders, and claimants;

(2) development of appropriate market conduct actions by the Commissioner as required to:

(A) substantiate market conduct problems; and

(B) remedy significant market conduct problems; and

(3) procedures to communicate and coordinate market conduct actions with other states to foster the most efficient and effective use of resources.

(b) Notwithstanding any other law or grant of authority, the Commissioner, as applicable, may undertake market analysis or market conduct action only as provided by this Act. Authority not expressly delegated to the Commissioner under this Act shall not be inferred.

SECTION 3. DEFINITIONS.

For the purposes of this Act, these defined words have the following meaning:

Drafting Note: If necessary, definitions of “insurer” and “insurance department” (or other appropriate regulatory agency) may be added. If a state has the authority to conduct market conduct examinations of third party administrators or other non-insurer entities, the appropriate provisions of this Model Act may be amended to extend its requirements and protections to such entities.

(a) “Commissioner” means the chief insurance regulatory official of the state.

Drafting Note: Where the word “Commissioner” appears in the Model Act, the appropriate designation for the chief insurance regulatory official of the state, if different, should be substituted.

(b) “Complaint” means a written or documented oral communication, the primary intent of which is to express a grievance or an expression of dissatisfaction. For health companies, a grievance is a written complaint submitted by or on behalf of a covered person.

(c) “Desk examination” means a targeted examination conducted by an examiner at a location other than an insurer’s premises. The term includes an examination performed at the department’s offices during which the insurer provides requested documents for department review by hard copy or by microfiche, disk, or other electronic media.

(d) “Market analysis” means a process under which market conduct surveillance personnel collect and analyze information from filed schedules, surveys, required reports, and other sources as necessary to:

(1) develop a baseline understanding of the marketplace; and

(2) identify insurer patterns or practices that:

(A) deviate significantly from the norm; or

(B) pose a potential risk to the insurance consumer.

(e) “Market conduct action” means any activity that the Commissioner may initiate to assess and address market practices of insurers licensed to do business in this state before conducting a targeted examination. The term does not include a Commissioner action taken to resolve:

(1) an individual consumer complaint; or

(2) another report relating to a specific instance of insurer misconduct.

(f) “Market conduct examination” means a review of one or more lines of business of an insurer domiciled in this state that is not conducted for cause. The term includes a review of rating, tier classification, underwriting, policyholder service, claims, marketing and sales, producer licensing, complaint handling practices, or compliance procedures and policies.

(g) “Market conduct examiners handbook” means the set of guidelines, developed and adopted by the National Association of Insurance Commissioners, that document established practices to be used by market conduct surveillance personnel in developing and executing an examination under this Act.

(h) “Market conduct surveillance personnel” means those individuals employed by or under contract with the department who collect, analyze, review, or act on information regarding insurer patterns or practices.

(i) “Market conduct uniform examination procedures” means the set of guidelines developed and adopted by the National Association of Insurance Commissioners designed to be used by market conduct surveillance personnel in conducting an examination under this Act.

(j) “National Association of Insurance Commissioners” (NAIC) means the organization of insurance regulators from the 50 states, the District of Columbia and the five U.S. territories.

Drafting Note: If statutory drafting conventions require further description, the following language should be used: “Its mission is to assist insurance regulators in protecting the public interest, promoting competitive markets, facilitating the fair and equitable treatment of insurance consumers, promoting the reliability, solvency and financial solidity of insurance institutions, and supporting and improving state regulation of insurance.”

(k) “On-site examination” means an examination that is conducted at:

(1) the insurer’s home office; or

(2) another location at which the records under review are stored.

(l) “Qualified contract examiner” means a person qualified by education, experience, and any applicable professional designations who is under contract with the Commissioner to perform market conduct actions.

(m) “Standard data request” means the set of field names and descriptions developed and adopted by the National Association of Insurance Commissioners for use by market conduct surveillance personnel in a market conduct action.

(n) “Targeted examination” means a limited review and analysis, conducted through a desk examination or an on-site examination and in accordance with the market conduct uniform examination procedures, of specific insurer conduct, practices, or risks identified through market analysis that have not been remedied by the insurer, including:

(1) underwriting and rating;

(2) marketing and sales;

(3) complaint handling operations and management;

(4) advertising materials;

(5) licensing;

(6) policyholder services;

(7) claims handling;

(8) policy forms and filings; or

(9) tier classification.

SECTION 4. IMMUNITY.

(a) A cause of action does not arise, and liability may not be imposed, for any statements made or conduct performed in good faith while implementing this Act, against:

(1) the Commissioner;

(2) an authorized representative of the Commissioner; or

(3) an examiner appointed by the Commissioner.

(b) A cause of action does not arise, and liability may not be imposed, against any person for the act of communicating or delivering information or data to the Commissioner or the Commissioner’s authorized representative or examiner under an examination made under this Act, if the act of communication or delivery was performed in good faith and without fraudulent intent or the intent to deceive.

(c) A person identified in Subsection (a) is entitled to attorney’s fees and costs if the person is the prevailing party in a civil cause of action for libel, slander, or any other relevant tort arising out of activities conducted in implementing this Act, and the party bringing the action was not substantially justified in doing so. For purposes of this subsection, an action is “substantially justified” if the action had a reasonable basis in law or fact at the time that it was initiated.

(d) This section does not abrogate or modify any common law or statutory privilege or immunity.

SECTION 5. GENERAL POWERS AND DUTIES OF COMMISSIONER

(a) The Commissioner shall participate in national market conduct databases.

(1) The Commissioner shall collect and report market data to the National Association of Insurance Commissioners’ market information systems, including the complaint database system, the examination tracking system, the regulatory information retrieval system, or other successor systems of that association, as determined by the Commissioner. Complaints reported to the Complaint Database system shall be justified complaints that have been substantiated by appropriate personnel in the Insurance Department and by the insurer that is the subject of the complaint.

(2) Information collected and maintained by the department shall be compiled in a manner that meets the requirements of the National Association of Insurance Commissioners.

(3) In addition to complaint data, insurer specific information reported to the National Association of Insurance Commissioners for market analysis and market conduct purposes shall be substantiated by appropriate personnel in the department and verified by the insurer.

(b) Market conduct action shall be coordinated with other states.

(1) The Commissioner shall coordinate the department’s market analysis and examination efforts with other states through the National Association of Insurance Commissioners.

(2) The Commissioner may share documents, materials, or other information, including the confidential and privileged documents, materials, or information with other state, federal and international regulatory agencies and law enforcement authorities and the National Association of Insurance Commissioners and that association’s affiliates and subsidiaries, if the recipient agrees to and has the legal authority to maintain the confidentiality and privileged status of the document, material, or other information.

(3) The Commissioner may receive documents, materials, or information, including otherwise confidential and privileged documents, materials, or information, from the National Association of Insurance Commissioners and that association’s affiliates or subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions. The Commissioner shall maintain as confidential or privileged any document, material, or information received with notice or the understanding that the document, material, or information is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information.

(1) At least once annually or more frequently if determined necessary by the Commissioner, the Commissioner shall provide in an appropriate manner to insurers and other entities subject to this code information regarding new laws and rules, enforcement actions, and other information the Commissioner considers relevant to ensure compliance with market conduct requirements.

(2) The Commissioner may provide the notice required under Subsection (1) in an electronic format that is designed to give insurers and other entities adequate notice.

(3) Failure by the Commissioner to provide the information described by Subsection (1) does not constitute a defense for an insurer who fails to comply with an insurance law of this state.

(d) The Commissioner shall designate an individual within the department whose responsibilities shall include the receipt of information from employees of insurers and other entities regulated by the department regarding violations of laws or rules by their employers. The Commissioner’s designee shall be properly trained in the handling of that information. Information received under this section is a confidential communication and is not public information.

(e) The Commissioner has the subpoena power authorized by [appropriate state citation], for the production of documents under this Act and enforcement of this subtitle.

SECTION 6. RELATIONS WITH OTHER STATES

(a) The Commissioner shall have the authority to interact with insurance Commissioners of other states.

(1) The Commissioner has responsibility for conducting market conduct examinations on domestic insurers. The Commissioner may delegate that responsibility to the insurance Commissioner of another state, if that insurance Commissioner agrees to accept the delegated responsibility. If the Commissioner elects to delegate responsibility for examining an insurer, the Commissioner shall accept a report of the examination prepared by the insurance Commissioner to whom the responsibility has been delegated.

(2) If the insurer to be examined is part of an insurance holding company system, the Commissioner may also seek to simultaneously examine any affiliate of the insurer that is authorized to write the same types of insurance in this state as the insurer if the insurance Commissioner of the state in which the affiliate is organized consents and delegates responsibility for that examination.

(3) In lieu of conducting a targeted examination of an insurer that holds a certificate of authority in this state but is not a domestic insurer, the Commissioner shall accept a report of a market conduct examination regarding that insurer prepared by the insurance Commissioner of the state in which the insurer is domiciled or by another state if:

(A) the laws of the examining state that are applicable to the subject of the examination are substantially similar to those of this state; and

(B) the examining state has a market conduct surveillance system that the Commissioner deems comparable to the market conduct surveillance system required under this Act.

(4) The Commissioner’s determination under Subsection (3)(B) is discretionary with the Commissioner and is not subject to appeal.

(5) Subject to a determination under Subsection (3), if a market conduct examination conducted by another state results in a finding that an insurer should modify a specific practice or procedure, the Commissioner shall accept documentation that the insurer has made a similar modification in this state in lieu of initiating a market conduct action or examination related to that practice or procedure.

SECTION 7. MARKET ANALYSIS PROCEDURES

(a) Information shall be collected and analyzed.

(1) Subject to Subsection (c), the Commissioner shall gather insurance market information from:

(A) data available to the department, including survey results and information required to be reported to the department;

(B) information collected by the National Association of Insurance Commissioners and from other sources; and

(D) information from websites for insurers, agents and other organizations; and

(E) information from other sources, provided they are published at least annually in a bulletin or regulation , prior to use.

(2) The Commissioner shall analyze the information compiled under Subsection (1) as necessary to:

(A) develop a baseline understanding of the insurance marketplace; and

(B) identify for further review insurers or insurance practices that deviate significantly from the norm or that pose a potential risk to the insurance consumer.

(3) The Commissioner shall use the following policies and procedures in performing the analysis required under this section:

(A) maintain an ongoing Market Analysis Chief (MAC);

(B) establish a systematic interdivisional communication program;

(D) identify companies for further analysis based on available information, including but not limited to:

(i) complaint activity on justified complaints that indicates a potential harm to consumers;

(ii) significant changes in Direct Written Premium volume; and

(iii) significant changes or anomalies in reserves;

(4) after completion of any level of Market Analysis, the state shall contact the insurer to verify the analysis prior to further market conduct action;

(A) Insurer specific information that is used and relied upon by the department when developing the baseline analysis and identifying insurers or practices for further review shall be substantiated by appropriate personnel in the department and verified by the insurer.

(B) The Commissioner may only utilize information from NAIC databases for market analysis provided that the Commissioner verifies the information directly with that state prior to its consideration.

(C) Except as otherwise specifically provided, the department or the Commissioner, as applicable, may not require an insurer to report information in a manner that is inconsistent with the records the insurer maintains in the ordinary course of business or can create at a reasonable expense or effort.

(b) A continuum of market conduct actions shall be utilized.

(1) If market analysis indicates the existence of causes or conditions that compel the Commissioner to inquire into a particular insurer or insurance practice, the Commissioner shall consider taking one or more of the market conduct actions described by Subsection (2) before conducting a targeted examination. If a market conduct action selected by the Commissioner requires the participation of or a response by the affected insurer, the Commissioner shall notify the insurer of the action selected in writing.

(2) Market conduct actions described by Subsection (1) may include:

(A) correspondence with the insurer;

(B) insurer interviews;

(D) policy and procedure reviews;

(E) interrogatories; and

(F) review of insurer self-evaluation and compliance programs, including insurer membership in a best-practice organization.

(3) The Commissioner shall select market conduct actions that are efficient and cost-effective for the department and the insurer while protecting the interests of the insurance consumer.

(4) The Commissioner shall take steps reasonably necessary to:

(A) eliminate requests for information that duplicate or conflict with information provided as part of an insurer’s annual financial statement, the annual market conduct statement of the National Association of Insurance Commissioners, or other required schedules, surveys, or reports that are regularly submitted to the Commissioner, or with data requests made by other states if that information is available to the Commissioner, unless the information is state specific; and

(B) coordinate the market conduct actions and findings of this state with those of other states.

(5) The causes or conditions, if identified through market analysis, that may trigger a targeted examination are:

(A) information obtained from a market conduct annual statement, market survey or report of financial examination indicating potential fraud, that the insurer is conduction the business of insurance without a license or is engaged in a potential pattern of unfair trade practice in violation of [cite statutory reference for the Unfair Trade and Claims Practices Acts].

(B) a number of justified complaints against the insurer or a justified complaint ratio sufficient to indicate potential fraud, conducting the business of insurance without a license, or a potential pattern of unfair trade practice in violation of [cite statutory reference for the Unfair Trade and Claims Practices Acts]. For the purposes of this section, a complaint ratio shall be determined for each line of business.

(C) information obtained from other objective sources, such as published advertising materials indicating potential fraud, conducting the business of insurance without a license, or evidencing a potential pattern of unfair trade practice in violation of [cite appropriate statutory reference for the state’s Unfair Trade and Claims Practices Act].

(1) Each market conduct action taken as a result of a market analysis:

(A) must focus on the general business practices and compliance activities of insurers, rather than identifying infrequent or unintentional random errors that do not cause significant consumer harm;

(B) may not result in a market conduct examination, unless the head of the insurance regulatory agency in the insurer’s state of domicile determines that a market conduct examination is needed.

(2) The Commissioner may determine the frequency and timing of the market conduct actions. The timing of an action depends on the specific market conduct action to be initiated unless extraordinary circumstances indicating a risk to consumers require immediate action.

(3) If the Commissioner has information that more than one insurer is engaged in practices that may violate statutes or rules, the Commissioner may schedule and coordinate multiple examinations simultaneously.

(4) The Commissioner shall provide an insurer with an opportunity to resolve to the satisfaction of the Commissioner any matter that arises as a result of a market analysis before any additional market conduct actions are taken against the insurer. If the insurer has modified a practice or procedure as a result of a market conduct action taken or examination conducted by the insurance Commissioner of another state, and the Commissioner deems that state’s market conduct surveillance system comparable to the system required under this Act, the Commissioner shall accept the modified practice or procedure in this state.

(5) For an application by the department of a handbook, guideline, or other product referenced in this Act that is the work product of the National Association of Insurance Commissioners that changes the way in which market conduct actions are conducted, the Commissioner shall give notice and provide interested parties with an opportunity for a public hearing as provided by [appropriate state citation].

(6) Each officer, director, employee, insurance producer, and agent of an insurer or person described by Subsection (6) shall, to the extent of that individual’s ability, facilitate and aid in a department market conduct action.

SECTION 8. MARKET CONDUCT EXAMINATIONS

(a) Protocols shall be followed for examinations.

(1) When market analysis identifies a pattern of conduct or practice by an insurer which requires further investigation, and a less intrusive market conduct action is not appropriate, the Commissioner may conduct a targeted examination in accordance with the market conduct uniform examination procedures and the market conduct examiners handbook.

(2) A targeted examination may be conducted through a desk examination or an on-site examination. To the extent feasible, the department shall conduct a market conduct examination through desk examinations and data requests before conducting an on-site examination.

(3) The department shall conduct an examination in accordance with the market conduct examiners handbook and the market conduct uniform examinations procedures.

(4) The department shall use the standard data request or a successor product that is substantially similar to the standard data request as adopted by the Commissioner by rule.

(5) If the insurer to be examined is not a domestic insurer, the Commissioner shall coordinate the examination with the insurance Commissioner of the state in which the insurer is organized.

(b) Before beginning an examination, market conduct surveillance personnel shall prepare a work plan that includes:

(1) the name and address of the insurer to be examined;

(2) the name and contact information of the examiner-in-charge;

(3) a statement of the reasons for the examination;

(4) a description of the scope of the examination;

(5) the date the examination is scheduled to begin;

(6) an identification of whether the examiners are department employees or independent contractors;

(7) a time estimate for the examination; and

(8) if the cost of the examination is billed to the affected insurer:

(A) a budget for the examination; and

(B) an identification of factors that will be included in the billing.

(1) Unless the examination is conducted in response to extraordinary circumstances indicating a risk to consumers requiring immediate action, the department shall notify an affected insurer of an examination not later than the 60th day before the scheduled date of the beginning of the examination. The notice must include the examination work plan and a request that the insurer name an examination coordinator for the insurer.

(2) In addition to the notice required under Subsection (a), the Commissioner shall post notice that a market conduct examination has been scheduled on the National Association of Insurance Commissioners examination tracking system.

(3) If a targeted examination is expanded beyond the reasons provided to the insurer in the notice of the examination required under Subsection (a), the Commissioner shall provide written notice to the insurer, explaining the extent of the expansion and the reasons for the expansion. The department shall provide a revised work plan to the insurer before the beginning of any significantly expanded examination.

(d) Not later than the 30th day before the scheduled date of the examination, the Commissioner shall conduct a pre-examination conference with the insurer’s examination coordinator and key personnel to clarify expectations.

(e) Except as otherwise provided by law, each insurer or person from whom information is sought under this Act, and each officer, director, or agent of that insurer or person, shall provide the Commissioner with convenient and free access to all books, records, accounts, papers, documents, and any computer or other recordings relating to the property, assets, business, and affairs of the insurer or person during regular business hours.

(f) Before the conclusion of an examination, the member of the market conduct surveillance personnel who is designated as the examiner-in-charge shall schedule an exit conference with the insurer.

(g) Protocols shall be followed in issuing an examination report, where the Commissioner has determined that the issuance of an examination report is required.

(1) Unless the Commissioner and the insurer agree to a different schedule, the Commissioner shall follow the time line established under this section.

(2) If the Commissioner elects to issue a report, the draft examination report shall be provided to the insurer not later than the 60th day after the date the examination is completed. For purposes of this section, the date the examination is completed is the date on which the exit conference is conducted.

(3) Not later than the 30th day after the date on which the insurer receives the draft examination report, the insurer shall provide any written comments regarding the report to the department.

(4) The department shall make a good faith effort to resolve issues with the insurer informally and where the Commission determines that such examination report is required shall prepare a final examination report not later than the 30th day after the date of receipt of the insurer’s written comments on the draft report unless a mutual agreement is reached to extend the deadline.

(5) The department shall include the insurer’s responses in the final examination report. The responses may be included as an appendix or in the text of the examination report. An insurer is not obligated to submit a response. An individual involved in the examination may not be named in either the report or the insurer response except to acknowledge the individual’s involvement.

(6) The Commissioner shall make corrections and other changes to the final examination report as appropriate to reflect resolution of disputed matters, and shall issue the report to the insurer. Not later than the 30th day after receipt of the final examination report under this subsection, the insurer shall accept the report, accept the findings of the report, file any written comments, request an alternative dispute resolution under Subsection (k) or request a hearing. The Commissioner and the insurer by mutual agreement may extend the period for an additional 30 days. A request for a hearing must be made in writing and must follow the requirements of [appropriate state citation].

(h) Expectations of confidentiality of examination report information.

(1) A final or preliminary market conduct examination report, and any information obtained during the course of an examination, is confidential and is not subject to disclosure under [appropriate state citation]. Documents and information obtained during an alternative dispute resolution under Subsection (k), and the results of such action, shall be afforded the same protection. No such report or information shall be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private action. This section may not be construed to limit the Commissioner’s authority to use any final or preliminary market conduct examination report, any examiner or company work papers or other documents, or any other information discovered or developed during the course of an examination in the furtherance of any legal or regulatory action that the Commissioner, in the Commissioner’s sole discretion, may deem appropriate.

(2) This Act does not prevent the Commissioner from disclosing at any time the contents of a final market conduct examination report to the department, the insurance department of any other state, or an agency of the federal government, if the department or agency receiving the report agrees in writing to maintain the information as confidential and in a manner consistent with this Act.

(3) The Commissioner shall provide to an insurer subject to a final market conduct examination a written agreement described by Subsection (2) not later than the fifth day after the date the final market conduct examination is released under Subsection (2).

(i) Assessment of costs and fees of examination.

(1) Subject to Subsection (2), if the reasonable and necessary expense for a market conduct examination is to be assessed against the affected insurer, costs and fees for that examination must be consistent with those otherwise authorized by law. The costs and fees must be itemized and bills for the costs and fees must be provided to the insurer at least as frequently as on a monthly basis for review prior to submission for payment.

(2) The Commissioner shall actively manage and oversee examination costs and fees, including but not limited to costs associated with the use of department personnel and examiners and with retaining qualified contract examiners necessary to perform an on-site examination. To the extent the Commissioner retains outside assistance, the Commissioner shall adopt by rule written protocols that:

(A) clearly identify the types of functions to be subject to outsourcing;

(B) provide specific time lines for completion of the outsourced review;

(D) establish and use a dispute resolution or arbitration mechanism to resolve conflicts with insurers regarding examination costs and fees; and

(E) require disclosure of the terms of contracts entered into with outside consultants, and specifically terms regarding the costs and fees or hourly rates that may be charged by those consultants.

(3) The Commissioner must review and affirmatively endorse detailed billings made by a qualified contract examiner before the detailed billings are sent to the insurer. Such billings shall be sent to the insurer monthly.

(4) The Commissioner may contract, in accordance with applicable state contracting procedures, for such qualified contract actuaries and examiners as the Commissioner deems necessary due to the unavailability of qualified regular state employees to conduct a particular examination; provided, that the compensation and per diem allowances paid to such contract persons shall not exceed one hundred twenty-five percent (125%) of the compensation and per diem allowances for examiners set forth in the guidelines adopted by the National Association of Insurance Commissioners.

(5) An insurer may not be required to provide reimbursement for examination costs and fees under Subsection (1), whether those costs and/or fees are incurred by market conduct surveillance personnel or qualified contract examiners, to the extent that those costs and fees exceed the costs and fees prescribed in the market conduct examiners handbook and any successor documents to that handbook, unless the Commissioner demonstrates that the costs and/or fees prescribed in the handbook are inadequate under the circumstances of the examination.

(j) The Commissioner may not conduct a market conduct examination with respect to a single licensed insurer more frequently than once every five years other than for cause under the definition of “market conduct examination” in Section 3(f). The Commissioner may waive conducting a market conduct examination based on market analysis.

(k) Alternative dispute resolution is an option for resolution of differences.

(1) Not later than the 30th day after receipt of a notice of examination under Subsection (c)(1), an insurer may request arbitration to contest the reason(s) given.

(2) Not later than the 30th day after receipt of a final examination report under Subsection (g)(6), an insurer may request arbitration of any matter related to the report which is in dispute, including but not limited to actions alleged to be outside the scope of the Commissioner’s statutory authority; examination procedures, including conduct of the examiners; examination costs and fees; findings by the Commissioner of violations of the laws of this state or regulations issued by the Commissioner; and proposed fines or penalties to be assessed for such violations.

(3) Arbitration shall be conducted by a board of arbitrators consisting of one arbitrator selected by the Commissioner, one arbitrator selected by the insurer, and a third selected jointly by the other two arbitrators. Each arbitrator must be certified by a recognized arbitration organization, including but not limited to the American Arbitration Association, and must have at least six (6) years of prior related insurance experience. No arbitrator may be a current or former employee of the Department or of the insurer, unless both parties agree. American Arbitration Association rules shall be applied in any such arbitration. A decision is valid only upon affirmative vote of at least two of the arbitrators. The Commissioner and the insurer must treat the decision of the arbitrators as final. Unless otherwise ordered by the arbitrators, the parties shall each bear the costs of the arbitrator selected by it and shall share equally in the costs of the third arbitrator and of the arbitration.

(4) Notwithstanding the provisions of subsections (1) and (2), an insurer may request a form of alternative dispute resolution other than arbitration, such as mediation, to contest the reason(s) given for the examination and/or any matter related to the report which is in dispute, including but not limited to actions alleged to be outside the scope of the Commissioner’s statutory authority; examination procedures, including conduct of the examiners; examination costs; findings by the Commissioner of violations of the laws of this state or regulations issued by the Commissioner; and proposed fines or penalties to be assessed for such violations

(5) Notwithstanding the provisions of Subsections (1), (2) and (4), an insurer may request a hearing in lieu of an alternative dispute resolution mechanism pursuant to [cite statutory reference for administrative procedure act]. Proceeding to hearing under this subsection in lieu of an alternative dispute resolution mechanism shall not be considered a failure to exhaust administrative remedies.

SECTION 9. CONFIDENTIALITY REQUIREMENTS

(a) The disclosure to the Commissioner under this Act of a document, material, or information does not constitute the waiver of any applicable privilege or claim of confidentiality regarding the document, material, or information.

(b) Notwithstanding Subsection (a), an insurer may not be compelled to disclose a self-audit document or waive any statutory or common law privilege. An insurer may, however, voluntarily disclose a document described by this subsection to the Commissioner in response to any market conduct action or examination.

(c) For the purposes of Subsection (b), “self-audit document” means a document that is prepared as a result of or in connection with an insurance compliance audit.

(d) The Commissioner may share documents, materials, or other information obtained by or disclosed to the Commissioner under this Act with other state, federal, and international regulatory agencies and law enforcement authorities if the recipient agrees to and has the legal authority to maintain the confidentiality and privileged status of the document, material, or other information.

(e) The Commissioner may receive documents, materials, or information, including otherwise confidential and privileged documents, materials, or information, from the National Association of Insurance Commissioners and that association’s affiliates or subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions. The Commissioner shall maintain as confidential or privileged any document, material, or information received with notice or the understanding that the document, material, or information is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information.

(f) Consistent with this section, the Commissioner may enter into agreements governing the sharing and use of information.

Drafting note: State should consider the adoption of NCOIL’s Insurance Compliance Self-Evaluative Privilege Model Act in conjunction with the Market Conduct Surveillance Model Act.

SECTION 10. MARKET CONDUCT SURVEILLANCE PERSONNEL

(a) To conduct market conduct surveillance under this Act, the Commissioner may designate department staff to perform duties under this Act, and may supplement that staff with qualified outside professional assistance if the Commissioner determines that that assistance is necessary.

(b) Market conduct surveillance personnel must be qualified by education and experience and, if applicable, must hold appropriate professional designations.

(c) An individual who is a member of the market conduct surveillance personnel has a conflict of interest, either directly or indirectly, if the individual is affiliated with the management of, has been employed by, or owns a pecuniary interest in an insurer subject to an examination conducted under this Act.

(d) Subsection (c) may not be construed to automatically preclude the individual from being:

(1) a policyholder or claimant under an insurance policy;

(2) a grantee of a mortgage or similar instrument on the individual’s residence from a regulated entity if done under customary terms and in the ordinary course of business;

(3) an investment owner in shares of regulated diversified investment companies; or

(4) a settlor or beneficiary of a blind trust into which any otherwise permissible holdings have been placed.

(e) Market conduct surveillance personnel may examine insurance company personnel under oath if that action is ordered by the Commissioner under [appropriate state citation].

SECTION 11. SANCTIONS

(a) The Commissioner may impose sanctions under [appropriate state citation] against an insurer determined, as a result of a market conduct action or other action under this Act, to have violated this code, a rule adopted under this code, or another insurance law of this state.

(b) In determining an appropriate sanction under Subsection (a) the Commissioner shall consider:

(1) any actions taken by the insurer to maintain membership in, and comply with the standards of, best-practice organizations that promote high ethical standards of conduct in the insurance marketplace; and

(2) the extent to which the insurer maintains regulatory compliance programs to self-assess, selfreport, and remediate problems detected by the insurer.

SECTION 12. SEVERABILITY

If any provision of this Act or the application of such provision to any person or circumstance is held invalid, the remainder of the Act and the application of any provision to any person or circumstances other than those as to which it has been held invalid shall not be affected.

SECTION 13. RULE MAKING AUTHORITY

(a) The Commissioner may adopt rules that are consistent with and no more restrictive than this Act as is necessary for the implementation and enforcement of this Act.

(b) The Commissioner shall give notice and provide interested parties with an opportunity for public hearing as provided by [appropriate state citation].

SECTION 14. EFFECTIVE DATE

This Act shall take effect one hundred and twenty days (120) days after the governor’s signature.

Approved by ALEC Board of Directors on 2006.

Reapproved by ALEC Board of Directors on January 28, 2013.

Reapproved by ALEC Board of Directors on November 16, 2017.

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