§431:2D-106 Protocols for market conduct examinations. (a) When market analysis identifies a pattern of conduct or practice by an insurer which requires further investigation, and less intrusive market conduct actions identified in section 431:2D-104(b) are not appropriate, the commissioner has the discretion to conduct targeted market conduct examinations in accordance with procedures that are substantially similar to the National Association of Insurance Commissioners' guidelines on market conduct examination procedures.

(b) Causes or conditions, if identified through market analysis, that may trigger a targeted examination, are:

(1) Information obtained from a market conduct annual statement, market survey, or report of financial examination indicating potential fraud, that the insurer is conducting the business of insurance without a license or is engaged in a potential pattern of unfair trade practice in violation of article 13;

(2) A number of complaints against the insurer or a 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 article 13. For the purposes of this section, a complaint ratio shall be determined for each line of business;

(3) 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 article 13; or

(4) Patterns of violations of this chapter and the rules adopted thereunder regarding rate filings, form filings, and termination requirements.

(c) If the insurer to be examined is not a domestic insurer, the commissioner shall communicate with and may coordinate the examination with the insurance commissioner of the state in which the insurer is organized.

(d) Concomitant with the notification requirements established in subsection (f), the commissioner shall post notification on the National Association of Insurance Commissioners' examination tracking system, or comparable product as determined by the commissioner, that a market conduct examination has been scheduled.

(e) Prior to commencement of a targeted on-site market conduct examination, market conduct surveillance personnel shall prepare a work plan and proposed budget. The proposed budget, which shall be reasonable for the scope of the examination, and work plan, shall be provided to the insurer under examination. Market conduct examinations, to the extent feasible, shall use desk examinations and data requests prior to a targeted on-site examination.

Market conduct examinations shall be conducted in accordance with procedures that are substantially similar to the National Association of Insurance Commissioners' guidelines on market conduct examination procedures.

Prior to the conclusion of a market conduct examination, the individual among the market conduct surveillance personnel who is designated as the examiner-in-charge shall schedule an exit conference with the insurer.

(f) Announcement of the examination shall be sent to the insurer and posted on the National Association of Insurance Commissioners' examination tracking system or comparable product, as determined by the commissioner, as soon as possible but not later than sixty days before the estimated commencement of the examination. The announcement shall contain:

(1) The name and address of the insurer being examined;

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

(3) The reason for and the scope of the targeted examination;

(4) The date the examination is scheduled to begin;

(5) Identification of any non-insurance department personnel who will assist in the examination, if known at the time the notice is prepared;

(6) A time estimate for the examination;

(7) A budget and work plan for the examination and identification of reasonable and necessary costs and fees that will be included in the bill, if the cost of the examination is billed to the insurer; and

(8) A request for the insurer to name its examination coordinator.

(g) If a targeted examination is expanded beyond the reasons provided to the insurer in the notice of the examination required under this section, the commissioner shall provide written notice to the insurer, explaining the extent of the expansion and the reasons for the expansion. The commissioner shall provide a revised work plan to the insurer before the beginning of any significantly expanded examination, unless extraordinary circumstances indicating a risk to consumers require immediate action.

(h) The commissioner shall conduct a pre-examination conference with the insurer examination coordinator and key personnel to clarify expectations thirty days prior to commencement of the examination.

(i) In requesting the information, the commissioner shall use the National Association of Insurance Commissioners' standard data request or comparable product.

An insurer responding to a commissioner's request to produce information shall produce it as it is kept in the usual course of business or shall organize and label it to correspond with the categories in the request.

If a commissioner's request does not specify the form or forms for producing electronically stored information, an insurer responding to the request shall produce the information in a form or forms in which the insurer ordinarily maintains it or in a form or forms that are reasonably usable.

An insurer responding to an information request need not produce the same electronically stored information in more than one form.

An insurer responding to an information request need not provide the electronically stored information from sources that the company identifies as not reasonably accessible because of undue burden or cost.

(j) The commissioner shall adhere to the following timeline, unless a mutual agreement is reached with the insurer to modify the timeline:

(1) The commissioner shall deliver the draft report to the insurer within sixty days of the completion of the examination. Completion of the examination shall be defined as the date the commissioner confirms in writing that the examination is completed;

(2) The insurer shall respond with written comments within thirty days of receipt of the draft report;

(3) The commissioner shall make a good faith effort to resolve issues and prepare a final report within thirty days of receipt of the insurer's written comments, unless a mutual agreement is reached to extend the deadline. The commissioner may make corrections and other changes, as appropriate; and

(4) The insurer, within thirty days, shall accept the final report, accept the findings of the report, file written comments, or request a hearing. An additional thirty days shall be allowed if agreed to by the commissioner and the insurer. Any such hearing request shall be made in writing and shall follow chapter 91.

The final written and electronic market conduct report shall include the insurer's written response and any agreed-to corrections or changes. The response may be included either as an appendix or in the text of the examination report. The insurer shall not be obligated to submit a response. References to specific individuals by name shall be limited to an acknowledgment of their involvement in the conduct of the examination.

(k) Upon adoption of the examination report pursuant to subsection (j), the commissioner shall continue to hold the content of the examination report as private and confidential for a period of thirty days, except as provided in this subsection. During this time, the report shall not be subject to subpoena and shall not be subject to discovery or admissible as evidence in any private action; provided that no court of competent jurisdiction has ordered production. Thereafter, the commissioner shall open the report for public inspection; provided no court of competent jurisdiction has stayed its publication. This section shall not be construed to limit the commissioner's authority to use any final or preliminary market conduct examination report, and examiner or insurer 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.

Nothing contained in this article shall prevent or be construed as preventing the commissioner from disclosing the content of an examination report, preliminary examination report or results, or any matter relating thereto, to the insurance division of this or any other state or agency of the federal government at any time; provided that the agency or office receiving the report or matters relating thereto agrees to hold it confidential and in a manner consistent with this article.

(l) Where the reasonable and necessary cost and fees of a market conduct examination are to be assessed against the insurer under examination, the costs and fees shall be consistent with that otherwise authorized by law. Costs and fees shall be itemized and bills shall be provided to the insurer on a monthly basis for review prior to submission for payment.

The commissioner shall maintain active management and oversight of examination costs and fees, including costs and fees associated with the use of insurance division personnel and examiners and with retaining qualified contract examiners necessary to perform an examination. To the extent the commissioner retains outside assistance, the commissioner shall have written protocols that:

(1) Clearly identify the types of functions subject to outsourcing;

(2) Provide specific timelines for completion of the outsourced review;

(3) Require disclosure of contract examiners' recommendations;

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

(5) Require disclosure of the terms of the contracts with the outside consultants that will be used, specifically the costs and fees or hourly rates, or both, that can be charged.

The commissioner shall review and affirmatively endorse detailed billings from the qualified contract examiner before the detailed billings are sent to the insurer.

The commissioner may contract in accordance with applicable state contracting procedures, for qualified contract actuaries and examiners as the commissioner deems necessary; provided that the compensation and per diem allowances paid to the contract persons shall not exceed one hundred twenty-five per cent of the compensation and per diem allowances for examiners set forth in the guidelines adopted by the National Association of Insurance Commissioners, unless the commissioner demonstrates that one hundred twenty-five per cent is inadequate under the circumstances of the examination.

(m) The commissioner may not conduct a comprehensive market conduct examination more frequently than once every three years. The commissioner may waive conducting a comprehensive market conduct examination based on market analysis. [L 2007, c 227, pt of §1]