GAO Official: Centralize Market Conduct Data Analysis

The appropriate system, he adds, will vary from company to company.

The market conduct exams done by states should not focus on reviews of files or compliance with specific state laws, as is the case today, but instead on internal control structures, Cluff says.

Cluff adds that any successful state-based system of market conduct oversight must have a set of commonly agreed upon and universally adopted standards.

Regulators working through the NAIC can best develop these standards, he says.

Cluff says that while the system he is outlining may seem too expensive when compared to the present system, it is important to remember several points.

First, he says, comparing his proposed system to the current system is inappropriate because the current system is widely recognized to be broken.

Second, Cluff says, the current system is inefficient both because there is no good way to identify those companies that are truly at risk and because each state feels responsible for every company that sells in the state.

This inefficiency is expensive, he says.

Third, Cluff says, centralizing market analysis would be far less expensive than asking each state to do good market analysis on its own.

Fourth, he says, once an examiner force is trained, the examinations of internal controls may be relatively quick and low cost, since they will not be fishing expeditions.

Finally, Cluff says, as insurance companies realize their responsibilities to self-police and implement good internal controls, the number of targeted exams may well fall, offsetting some of the costs of conducting routine internal control exams.