Along with solvency regulation, market conduct regulation represents one of the two pillars of insurance regulation. Insurance regulators have a valid and important role in monitoring the insurance marketplace to ensure that customers are treated fairly. However, this role can be, and often is, expanded beyond what is needed or prudent, resulting in unnecessary costs that ultimately are borne by those who pay for insurance products and services. In the international realm, market conduct regulation, referred to as conduct of business, is a newer concept. While other countries may have similar oversight of the companies operating in their jurisdiction, there is currently no International Association of Insurance Supervisors’ core principles or guidance around market conduct of insurers. The interest in market conduct is different as well. IAIS seems to focus on the risks to the company caused by poor market practices and has less focus on the customer impact.
Recently the IAIS created a working group to begin the investigation into the proper standards for conduct of business, and unlike other international regulatory initiatives, it turned to the U.S. Market Conduct Regulatory system for guidance. Consequently, most of the concepts in the initial investigatory papers from the IAIS have familiar references to the practices in the U.S.
The most recent draft application paper defined conduct of business in much the same way as market conduct is viewed in the U.S. “Conduct of business risk can be described as the risk to customers, insurers, the insurance sector, or the insurance market that arises from insurers and/or intermediaries conducting their business in a way that does not ensure fair treatment of customers.” The application paper suggested the appropriate supervisory actions included on-site investigation and off-site monitoring of insurers, assessment of conduct treatment in risk management processes, and communication about expected conduct to insurers and the public. Appropriate company actions include support for fair customer outcomes in the governance practices, and proper inclusion of conduct risks in Enterprise Risk Management.
NAMIC supports reasonable market conduct initiatives that include directing regulatory attention toward valid marketplace problems and bad actors. NAMIC opposes any initiatives that would impose additional burdensome market conduct exam requirements on insurers.