20 Years Later: The Market Conduct Surveillance Model Law

The Market Conduct Surveillance Model Law (MDL #693) recently turned 20 years old, as it was adopted by the National Association of Insurance Commissioners (NAIC) in 2004. According to the NAIC Project History in 2004, this act was designed to provide “a legislative framework for the implementation of structured market analysis, uniform targeted examinations and interstate collaboration.” However, only about eight states have taken action to adopt the key procedural provisions of this model law by statute.

The last NAIC State Page tracking adoption of the model (in Fall 2021) listed six (6) states that had implemented the model law in a “substantially similar way,” as well as twenty-two (22) states having taken “Related Activity.”  However, our review only indicated that four of the six states who had substantially implemented the model had adopted most of the model’s key procedural provisions - Colorado, Rhode Island, Texas, and Washington. Separately, our review of the “related activity” states identified two states that had adopted key procedural provisions of the model– Maryland and Missouri.  We also found Hawaii to have adopted this model in 2007, and very recently, Illinois adopted a law largely based on the NAIC model that became effective on January 1, 2025.  Thus, we think eight states have adopted the key provisions of the model.

While no one in the current Rhode Island market conduct team was employed in the department when Rhode Island adopted the model in 2008, we have spent considerable time in the past several years understanding the nuances of the law and the many procedures that it outlines.  Those internal discussions and thoughts have led to a robust understanding of the safeguards incorporated into this law, and a respect for both the legal protections that this law provides insurers but also the flexibility that it gives insurance regulators. 

We think it would be helpful to begin with identifying key goals and provisions of the law and then discussing what other stakeholders think about it.  Finally, we will address why the Authors and other state insurance regulators think that states without the model should consider adopting its key procedural pieces.

Key Provisions of the Model

When reviewing the model law, we noted three goals in its “Purpose and Legislative Indent” section: “(1) [to] establish a system for identifying, assessing and prioritizing market regulatory problems that have a substantial adverse impact on consumers, policyholders and claimants; (2) [to] set forth a broader continuum of regulatory responses that a commissioner might take to substantiate market problems; and (3) [to] develop procedures to communicate and coordinate market regulatory actions among states to foster the most efficient and effective use of resources.”  These ideas were also later introduced in the NAIC’s Market Conduct Core Competencies (adopted at the NAIC 2005 Winter National Meeting and added to the Market Conduct Handbook in 2007), which cover state resources, market analysis, the continuum of regulatory responses, and interstate collaboration.

When we looked at the various states and their market conduct authority, we were focused on several key provisions from the NAIC Model 693, including its market analysis procedures, its protocols for market conduct actions, its enumerated requirements in order to justify a market conduct examination, and its strong preference for coordinated action among the states.  We also reviewed the model law’s requirements for confidentiality rules, market conduct personnel (including immunity provisions, conflict of interest rules, and qualifications), fines and penalties, additional responsibilities for commissioners, and participation in national market conduct databases.

We understand anecdotally that the model was adopted at a time when market conduct examinations were frequent in nature, and examiners might encounter multiple other states conducting similar exams at the same time.  As such, some of the impetus for this model could have been to create statutory protections for insurers by raising the requirements for calling market conduct examinations.  The model encourages better cooperation between states and tends to make any such examinations more targeted and effective.  By outlining a number of procedural steps that states could and should take before calling exams, the model law promotes a type of market regulation that allows examiners to review and manage the entire marketplace through targeted interventions.

Survey

We surveyed several states who have adopted the model’s key provisions, as well as a few other individuals who we hoped would provide additional perspectives. Below are some of the questions we asked:

• Do you think consumers benefited from [Insert State] adopting the Market Conduct Surveillance Model Law (MDL #693) (the “model law”)?  In what ways did they benefit?

• Do you think your department benefited from your state adopting the model law?  If so, what do you see as the key benefits (to flexibility, efficiency, effectiveness, etc.)?

• Do you think insurers operating in [Insert State] have benefited from [Insert State] adopting the Market Conduct Surveillance Model Law (MDL #693) (the “model law”)?  In what ways did they benefit?

• What drawbacks, if any, have you seen from implementing the model law?

• In adopting the model law, according to the NAIC’s Project History in its “significant issues raised” section, “some states expressed concern that the model act places restrictions on a state’s authority to conduct regulatory investigations and examination.”  Based on [Insert State]’s experience, do you believe those concerns were justified?  Please explain.

• Do you think other states would benefit from adopting the model law?  If so, what steps do you think IRES or the NAIC could have in promoting broader adoption of this model law?

• What recommendations do you have for other states considering adopting the model law?  Are there any additions, deletions, or other adjustments that you think states should consider when adopting the model law?

Survey Feedback on Benefits of the Model: Texas, Colorado, Washington State, and Hawaii praised the law for its benefits to consumers, state insurance departments, and insurers.  According to Tracy Garneau, Market Regulation Director for the Colorado Division of Insurance, “Colorado has found that adoption of the Market Conduct Surveillance Model Law, or model law, has benefited the Colorado Division of Insurance and regulated companies by providing consistency in standards that are objective and uniform across examinations and actions. Consumers benefit from the model law through improved efficiencies both in Market Actions and Examinations.”  John Haworth, former Deputy Insurance Commissioner for the Washington State Office of the Insurance Commissioner, noted that adopting the model law allowed their department to increase staffing and move from a check-list approach to a risk focused approach.  Lance Hirano, Market Conduct Analyst/Examiner for the Hawaii Insurance Division, pointed out how the model law helped them fill in regulatory authority gaps, particularly allowing for ad hoc data calls and implementing stronger confidentiality rules.

Survey Feedback on Further Discussion of the Model: Matthew Tarpley, Associate Commissioner for the Texas Department of Insurance, wrote that “We believe it would be helpful if IRES [Insurance Regulatory Examiners Society] and/or the NAIC promoted the model as one important piece of a larger regulatory compliance puzzle.” Ms. Garceau suggested that it may be time to put the model law on the NAIC’s agenda so that it can be revisited.

Survey Feedback on How a State Might Adopt the Model: Tim Mullen, Director of Market Regulation for the NAIC, responded that many of the model law’s provisions could be incorporated administratively.  Mr. Haworth also noted that states may have more challenging concerns or lack the funding, staff, or training to convert to the model law approach to market analysis and focused exams.  Jo A. LeDuc, Director for Insurance Market Regulation Division at the Missouri Department of Commerce & Insurance, cautioned that “many more jurisdictions have implemented processes that align with the spirit of the model law than what is reflected in the chart. Much of what the model deals with is process-related, which is different from what you typically see in model laws. Rather than setting the process out in law, jurisdictions may have chosen to amend their internal processes and/or their administrative rules.”  She also noted that the NAIC’s Market Regulation Handbook covers many of these same processes.

Survey Feedback on Other Ideas to Encourage Similar Ends: In addition to the Market Regulation Handbook, Ms. LeDuc said that “[p]articipation in the NAIC Working Groups also helps jurisdictions achieve many of the model’s purposes,” such as the Market Actions (D) Working Group (MAWG) helping with communication and coordination and the Market Information Systems (D) Working Group ensuring jurisdictions participate in various NAIC databases and analysis tools.  She also pointed out that the recently adopted Voluntary Market Regulation Certification Program would help states continue to fulfill the model’s purpose.

Takeaways and Recommendations

The Authors started this project noting that it had been twenty years since adoption of Model 693 and thinking it made sense to revisit it and see if there were lessons learned from the model and whether there were opportunities to enhance the procedures it created.  We conducted the survey to see what other states might have thought after having adopted the model themselves and worked with it for a while.  Having spent some time reflecting on these responses, we think that there are considerable benefits from states having adopted Model 693 and think that states that have not adopted it should consider whether adoption (statutorily, through regulation, or just through internal procedures) would benefit them.  However, we also note that while we have identified only eight states with substantially similar laws, since the key provisions may have been adopted by regulation or procedure, it is possible that many more states have adopted the core components of Model 693.

The model outlines procedures through which each state might conduct its own market conduct activities.  While those procedures are thorough, they are designed to be broad enough to allow states flexibility in implementation.  And those procedures allow significant state discretion within those boundaries.  The procedures also appear well harmonized with the NAIC Market Regulation Handbook.  For example, the 2024 Market Regulation Handbook lists out eight continuum options for state insurance departments on pages 12-13, and Model 693 in Section 4(B)(1) lists out seven continuum options on page 3, with considerable overlap between the Handbook and Model 693 listed options.

The Authors plan to submit detailed survey results to leadership of the NAIC’s Market Regulation and Consumer Affairs (D) Committee (D Committee) along with a copy of this article.  It is clear many of the model law’s goals of collaboration amongst the states and procedural protections are being met through the Market Regulation Handbook and Voluntary Market Regulation Program as well as participation in NAIC databases, analysis tools, and committees.  However, many states may still be able to use the model law to fill in regulatory gaps, push for greater state resources, or better align their processes with the NAIC’s Market Conduct Core Competencies.

The Authors also plan to recommend that D Committee should encourage non-adopting states to review these survey results and reconsider adopting the model law in full or in part, via statute, regulation, or internal procedures.  During this process, states should consider if any model language could also assist in meeting requirements in the Voluntary Market Conduct Certification Program.  The Market Conduct Surveillance Model Law still has useful tools, and states should consider adding those tools to their regulatory toolboxes.

*The authors want to thank the many fellow regulators, NAIC staff and former regulators who assisted this effort through their thoughtful answers to survey and other suggestions of direction for this project.