In the absence of generally accepted standards, individual states decide how they will do market analysis and perform market conduct examinations. While all states do market analysis in some form, few have established formal programs that look at companies in a consistent and routine manner. States also have no generally agreed upon standards for how many examinations to perform, which companies to examine and how often, and what the scope of the examination should be. As a result of the lack of common standards for market analysis and the lack of consistency in the application of the guidelines for examinations, states find it difficult to depend on other states’ oversight of companies’ market behavior. NAIC and some states have a growing awareness that better market analysis can be a significant tool for monitoring the marketplace behavior of insurance companies and deciding which insurers to examine. All states perform some type of market analysis. In many states, however, it consists largely of monitoring complaints and complaint trends; and reacting to significant issues that arise. Three states that we visited—Missouri, Ohio, and Oregon—have established a proactive market analysis program. These programs for market analysis have established processes for monitoring company behavior to identify trends, companies that vary from the norm (outliers), and potential market conduct problems. In general, an established program would have dedicated staff and protocols for gathering data and conducting analysis at the department offices. Each of the three states with an analysis process that we visited approached market analysis in a different way. Ohio’s program consisted of special data calls to obtain extensive information from selected company files, and using computerized audit tools to analyze specific aspects of companies’ operations relative to norms identified by peer analysis and to state law. For example, Ohio did 184 “desk audits” in 2001 using data requested from companies doing business in the state. Missouri relied on routinely collecting market data from all licensed companies. Missouri has developed a market data report that companies submit as a supplement to their annual financial reports. This data is then used to evaluate market trends and conditions, as well as to identify individual companies that were outliers. Oregon’s newly established program involved maintaining files on companies in which all available data was collected to facilitate a broad and ongoing review of company behavior. Both Ohio and Oregon told us that their market analysis programs were still in an experimental stage of development. When properly done, market analysis can allow states to focus attention on the high-risk companies rather than selecting companies for examination based primarily on criteria such as market share, which does not directly correlate to market behavior problems. Missouri officials added that market analysis is not a substitute for market conduct examinations but should interact and be integrated with the examination process. Each state has between 900 and 2,000 licensed insurance companies. Because in general states do not currently depend upon other states’ regulation of companies’ market behavior, most states feel a responsibility for overseeing all the companies selling in their state. The impossibility of examining so many companies requires regulators to identify and prioritize which companies they will examine. The states we visited used a variety of factors to choose companies for a market conduct examination. The most commonly used factors for choosing from among the companies deemed eligible for a market conduct examination were complaints, market share, and time since the last examination. Some states chose to do market conduct exams for only a subset of licensed companies, even though other companies could comprise a majority of the insurers selling in the state. For example, of the states we visited, Arkansas focused primarily on domestic companies—that is, on companies chartered in their state. In Arkansas, 245 of 1,668 licensed companies in 2001 were domestic. As a consequence, 1,423 non-domestic companies, or 85 percent of all the companies licensed in Arkansas in 2001, were not examined in Arkansas in spite of the fact that they may or may not have been examined by some other state. All the states we visited limited the scope of their examinations to customers from within their particular state. That is, examiners looked only at files of state residents. Moreover, most states further limited the scope of their examinations by focusing on only one or a few of a company’s area of operations. While some states still do comprehensive market conduct examinations, the trend is to conduct targeted examinations of limited scope and in a specific area of concern. State officials we interviewed indicated that targeted examinations are being used more often because these examinations do not take as long as comprehensive examinations, allowing states to conduct more. Of the 9 states we visited, Arkansas, Missouri, and New Mexico continued to conduct some comprehensive examinations as well as targeted examinations. Arkansas officials told us that they believed comprehensive examinations were important because such examinations provided the greatest assurance that companies were complying with insurance laws and regulations. According to NAIC, 49 states and the District of Columbia reported performing some market conduct activities in 2001. Of these, 15 completed only targeted examinations, 4 did only comprehensive examinations, and 22 completed some of both types of examination. The remaining nine did not complete any market conduct examinations in 2001. The requirements for and level of training for examiners also varied widely among the states. Each of the states we visited provided some type of training for their examiners. However, there are no generally accepted standards for what constitutes adequate training for a market conduct examiner across the states. Several levels of certifications for market conduct examiners are available, but only 2 of the states we visited, Oregon and New Mexico, required their examiners to certify or become certified in a specified period. As can be seen in table 1, there is considerable variation in the number of examinations completed in 2001 by the states we visited. Variation in the number of examinations consistent with the size of the insurance market would be expected. However, as shown in the table, the number of examinations completed bore little relationship to the size of the insurance market in each state. This comparison should not necessarily be taken as an indicator of the relative regulatory performance of the nine states we visited, because during another year the ranking of the states could be different. However, together with the variations in how states select companies for examinations and how they do them, this added variability helps further explain why the states may be reluctant to depend on other states to examine companies selling insurance to their citizens. plans, efforts, and results could improve regulation and, at the same time, reduce the regulatory burden on companies. Many insurance companies, particularly the largest ones, report that they undergo frequent, sometimes simultaneous, market conduct examinations. We asked 40 of the largest national insurance companies to provide information about their market conduct examination experience for the years 1999 to 2001. Of the 25 companies that responded, 19 were examined a total of 130 times by multiple insurance regulators during the 3-year period. Six were examined once or twice during the period, and just over half the responding companies were examined between one and five times. However, three companies were each examined 17 or more times during the 3 years, with one company receiving 20 examinations—an average of seven nearly every year. These results appear to be consistent with concerns expressed by the insurance industry about excessively frequent and possibly duplicative market conduct examinations. One of the most common complaints from the 25 insurers that responded to our questionnaire was that states did not coordinate their examinations with other states. Some companies reported that, on occasion, multiple states had conducted on-site examinations at the same time. The companies told us that such examinations create difficulties for them and limited the resources they had available to assist the examiners. For example, one insurer wrote, “It takes an insurer a tremendous amount of effort to prepare for and deal with individual state insurance department’s exams (every one is different, plus states generally do not accept others exams in place of another similar exam being done). The duplication of effort is wasteful by the states.” In contrast, six companies, or nearly one-quarter of those responding, had not been examined by any state during the period. Of these six companies, two were last examined in 1997 and the other four did not report having any market conduct examinations. These companies—like others that reported—are large multi-state insurance companies. Since in many states a primary criterion for selecting a company for examination is market share, these responses suggest that the proportion of medium-size and small insurers that rarely, if ever, receive a market conduct examination may be much higher. Groups of states, as well as NAIC, have taken actions to improve the coordination and efficiency of the market conduct examination process. One effort involves improving the sharing of examination information by providing notice of upcoming examinations and sharing results through NAIC’s Examination Tracking System. However, the Examination Tracking System is incomplete and often ignored by the state regulators, in part, because it has been inconvenient and difficult to use for scheduling and reporting the results of market conduct examinations. As a result, states are not fully utilizing the system. NAIC’s survey of states’ use of the Examination Tracking System concluded that no more than 66 percent of the states, or 36 states, consistently reported their market conduct or combined market conduct/financial examination schedules to NAIC. Moreover, only 31 percent of the states reported back to NAIC when the examination had been completed. Another avenue of coordination being pursued by NAIC and some states is joint, or collaborative, examinations. Based on our review of nine states and of NAIC information, some states do conduct collaborative examinations. For example, Ohio officials told us that they had started to conduct collaborative examinations with Illinois, Nebraska, and Oregon. Indiana officials indicated that they had recently completed an examination of a large insurer jointly with another state. Such efforts, however, have not been consistent among states, nor is there a policy or standard procedure about when or how such examinations should occur. Furthermore, while collaborative examinations could reduce the total number of duplicative exams and may result in somewhat more efficient use of regulatory resources, they still require that each state send examiners into the company. In effect, collaborative examinations are a way for multiple states to do a market conduct examination of a company at the same time.