[§431:2D-106]  Protocols for market conductexaminations.  (a)  When market analysis identifies a pattern of conduct orpractice by an insurer which requires further investigation, and less intrusivemarket conduct actions identified in section 431:2D‑104(b) are notappropriate, the commissioner has the discretion to conduct targeted marketconduct examinations in accordance with procedures that are substantiallysimilar to the National Association of Insurance Commissioners' guidelines onmarket conduct examination procedures.

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

(1)  Information obtained from a market conduct annualstatement, market survey, or report of financial examination indicatingpotential fraud, that the insurer is conducting the business of insurancewithout a license or is engaged in a potential pattern of unfair trade practicein violation of article 13;

(2)  A number of complaints against the insurer or acomplaint ratio sufficient to indicate potential fraud, conducting the businessof insurance without a license, or a potential pattern of unfair trade practicein violation of article 13.  For the purposes of this section, a complaintratio shall be determined for each line of business;

(3)  Information obtained from other objectivesources, such as published advertising materials indicating potential fraud,conducting the business of insurance without a license, or evidencing apotential pattern of unfair trade practice in violation of article 13; or

(4)  Patterns of violations of this chapter and therules adopted thereunder regarding rate filings, form filings, and terminationrequirements.

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

(d)  Concomitant with the notificationrequirements established in subsection (f), the commissioner shall post notificationon the National Association of Insurance Commissioners' examination trackingsystem, or comparable product as determined by the commissioner, that a marketconduct examination has been scheduled.

(e)  Prior to commencement of a targetedon-site market conduct examination, market conduct surveillance personnel shallprepare a work plan and proposed budget.  The proposed budget, which shall bereasonable for the scope of the examination, and work plan, shall be providedto the insurer under examination.  Market conduct examinations, to the extentfeasible, shall use desk examinations and data requests prior to a targetedon-site examination.

Market conduct examinations shall be conductedin accordance with procedures that are substantially similar to the NationalAssociation of Insurance Commissioners' guidelines on market conductexamination procedures.

Prior to the conclusion of a market conductexamination, the individual among the market conduct surveillance personnel whois designated as the examiner-in-charge shall schedule an exit conference withthe insurer.

(f)  Announcement of the examination shall besent to the insurer and posted on the National Association of InsuranceCommissioners' examination tracking system or comparable product, as determinedby the commissioner, as soon as possible but not later than sixty days beforethe estimated commencement of the examination.  The announcement shall contain:

(1)  The name and address of the insurer beingexamined;

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

(3)  The reason for and the scope of the targetedexamination;

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

(5)  Identification of any non-insurance departmentpersonnel who will assist in the examination, if known at the time the noticeis prepared;

(6)  A time estimate for the examination;

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

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

(g)  If a targeted examination is expandedbeyond the reasons provided to the insurer in the notice of the examinationrequired under this section, the commissioner shall provide written notice tothe insurer, explaining the extent of the expansion and the reasons for theexpansion.  The commissioner shall provide a revised work plan to the insurerbefore the beginning of any significantly expanded examination, unlessextraordinary circumstances indicating a risk to consumers require immediateaction.

(h)  The commissioner shall conduct apre-examination conference with the insurer examination coordinator and keypersonnel to clarify expectations thirty days prior to commencement of theexamination.

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

An insurer responding to a commissioner'srequest to produce information shall produce it as it is kept in the usualcourse of business or shall organize and label it to correspond with thecategories in the request.

If a commissioner's request does not specifythe form or forms for producing electronically stored information, an insurerresponding to the request shall produce the information in a form or forms inwhich the insurer ordinarily maintains it or in a form or forms that arereasonably usable.

An insurer responding to an information requestneed not produce the same electronically stored information in more than oneform.

An insurer responding to an information requestneed not provide the electronically stored information from sources that thecompany identifies as not reasonably accessible because of undue burden orcost.

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

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

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

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

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

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

(k)  Upon adoption of the examination reportpursuant to subsection (j), the commissioner shall continue to hold the contentof 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 notbe subject to subpoena and shall not be subject to discovery or admissible asevidence in any private action; provided that no court of competentjurisdiction has ordered production.  Thereafter, the commissioner shall openthe report for public inspection; provided no court of competent jurisdictionhas stayed its publication.  This section shall not be construed to limit thecommissioner's authority to use any final or preliminary market conductexamination report, and examiner or insurer work papers or other documents, orany other information discovered or developed during the course of anexamination in the furtherance of any legal or regulatory action that thecommissioner, in the commissioner's sole discretion, may deem appropriate.

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

(l)  Where the reasonable and necessary costand fees of a market conduct examination are to be assessed against the insurerunder examination, the costs and fees shall be consistent with that otherwiseauthorized by law.  Costs and fees shall be itemized and bills shall beprovided to the insurer on a monthly basis for review prior to submission forpayment.

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

(1)  Clearly identify the types of functions subjectto outsourcing;

(2)  Provide specific timelines for completion of theoutsourced review;

(3)  Require disclosure of contract examiners'recommendations;

(4)  Establish and use a dispute resolution orarbitration mechanism to resolve conflicts with insurers regarding examinationcosts and fees; and

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

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

The commissioner may contract in accordancewith applicable state contracting procedures, for qualified contract actuariesand examiners as the commissioner deems necessary; provided that thecompensation and per diem allowances paid to the contract persons shall notexceed one hundred twenty-five per cent of the compensation and per diemallowances for examiners set forth in the guidelines adopted by the NationalAssociation of Insurance Commissioners, unless the commissioner demonstratesthat one hundred twenty-five per cent is inadequate under the circumstances ofthe examination.

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