OIR Moving Forward with Penalty Rule Repeal
The Office of Insurance Regulation has decided to move forward with repealing the so-called “penalty rule” (69O-142.011 “Insurer Conduct Penalty Guidelines”) despite uniform support among industry representatives for keeping the rule, with appropriate revisions. The existing rule categories many types of violations of the insurance code, informing the public and the insurance industry about the relative severity of the various violations. The rule also identifies factors that can either compound or mitigate insurers’ violations. This helps guide insurers’ conduct, informing them how they should (and should not) respond to violations that are discovered. The rule further specifies that insurers will not be penalized when they discover violations and implement corrective measures on their own. This provision affirms the state’s intent that insurers should conduct self-evaluations independently of the regulatory review process.
The OIR contends the rule is out of date because the underlying statutes have changed since it was adopted. However, industry representatives responded that the statutory changes have been to increase monetary fine amounts, which easily can be incorporated into an amended rule rather than throwing out the entire rule. Representatives of both property and casualty insurers and life and health insurers suggested that all parties should work together on a revised rule instead of allowing the current rule to be repealed. My own comments to the Office of Insurance Regulation were consistent with this approach– the rule is beneficial in guiding insurer conduct, and the rule helps ensure that regulatory policies are carried out consistently over time, which is an important consideration to investors evaluating whether to deploy their capital in this state.
Notwithstanding support for retaining the rule, the OIR intends to present its repeal to the Financial Services Commission (Cabinet) on October 23.