Second Regular Session Sixty-ninth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 14-0899.01 Thomas Morris x4218 SENATE BILL 14-148 SENATE SPONSORSHIP Cadman, Balmer, Grantham, Harvey, Hill, Jahn, Lambert, Marble, Renfroe, Scheffel, Tochtrop HOUSE SPONSORSHIP Sonnenberg and Kraft-Tharp, Holbert, Stephens, Vigil Senate Committees House Committees State, Veterans, & Military Affairs A BILL FOR AN ACT Concerning market conduct examinations conducted by the commissioner of insurance. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) The bill modifies the standards pursuant to which the commissioner of insurance conducts market conduct examinations by: Focusing on the activities of insurers that cause actual harm to insurance consumers rather than administrative errors and specifying that unless extraordinary circumstances, demonstrated by clear and convincing evidence, indicate that an imminent risk to consumers requires immediate action, insurers are not subject to a market conduct examination more frequently than once every 5 years (section 2); Requiring the pre-examination conference to be conducted in accordance with the pre-examination provisions of the national association of insurance commissioners' market conduct examiner's handbook and specifying the issues that the parties must discuss during the pre-examination conference (section 3); and Requiring all fines and penalties to be rationally related to actual harm suffered by consumers as a result of actions, errors, or omissions of the insurer; specifying that the aggregate total amount of fines cannot exceed one year of reported profit earned by the insurer; and, requiring the commissioner, when imposing fines or penalties, to consider actual harm suffered by insurance consumers and prohibiting the commissioner from considering administrative errors or infrequent or unintentional random errors that do not cause significant consumer harm (section 4). Be it enacted by the General Assembly of the State of Colorado: SECTION 1. Legislative declaration. (1) The general assembly hereby finds, determines, and declares that the purpose of this act is to establish a framework for market conduct actions with a focus on market regulation designed to protect consumers in ways that strike a balance between the interests of consumers and insurers and, among other matters: (a) To permit the commissioner of insurance to assess fines and penalties based upon actual harm suffered by insurance consumers; (b) To protect insurers from adverse administrative action based upon administrative errors or errors that do not cause significant consumer harm; and (c) To provide a means of resolving targeted on-site marketing conduct examination issues early in the process. SECTION 2. In Colorado Revised Statutes, 10-1-211, amend (1) introductory portion, (1) (a), and (2) (a) as follows: 10-1-211. Protocols for market conduct actions. (1) Each market conduct action taken as a result of a market analysis shall must: (a) Focus on the general business practices and compliance activities of insurers that cause actual harm to insurance consumers rather than initiating market conduct actions in response to administrative errors or clearly infrequent or unintentional random errors that do not cause significant consumer harm; and (2) (a) (I) The commissioner is authorized to may determine the frequency and timing of market conduct actions taken as a result of a market analysis; except that an insurer is not subject to a new market conduct action more frequently than once every five years unless the demonstration specified in subparagraph (II) of this paragraph (a) has been made. (II) The timing shall depend of a market conduct action depends upon the specific market conduct action to be initiated unless extraordinary circumstances indicating a are demonstrated to the commissioner by clear and convincing evidence that indicate that an imminent risk to consumers require requires immediate action, in which case the time limitation specified in subparagraph (I) of this paragraph (a) does not apply. A market conduct action based on imminent risk to consumers may be instituted only after the commissioner issues a written finding and serves the finding upon the insurer subject to the market conduct action. SECTION 3. In Colorado Revised Statutes, 10-1-212, add (5.5) as follows: 10-1-212. Targeted, on-site market conduct examinations - rules. (5.5) The pre-examination conference shall be conducted in accordance with the pre-examination provisions of the NAIC market conduct examiner's handbook. During the pre-examination conference, the parties shall discuss: (a) Early resolution and simplification of any issue or any dispute; (b) How to avoid the production of unnecessary or duplicative information; and (c) How to facilitate in other ways the just, speedy, and inexpensive disposition of the examination. SECTION 4. In Colorado Revised Statutes, amend 10-1-215 as follows: 10-1-215. Fines and penalties. (1) (a) Fines and penalties levied as a result of a market conduct action or other action enforcing this part 2 shall must be consistent, reasonable, and justified. (b) All fines and penalties must be rationally related to actual harm suffered by consumers as a result of actions, errors, or omissions of the insurer. (c) The total amount of fines must not exceed one year of reported profit earned by the insurer subject to the examination for the five-year period of time encompassed by the examination. (2) The commissioner: (a) Shall take into consideration: (I) Actions taken by insurers to maintain membership in, and comply with the standards of, best-practice organizations that promote high ethical standards of conduct in the marketplace and the extent to which insurers maintain regulatory compliance programs to self-assess, self-report, and remediate problems detected; and (II) Actual harm suffered by insurance consumers, which must be specified in a report prepared in accordance with section 10-1-205; (b) Shall not take into consideration administrative errors or infrequent or unintentional random errors that do not cause significant consumer harm; and (b) (c) May include the considerations specified in paragraph (a) of this subsection (2) in determining the appropriate fines levied in accordance with subsection (1) of this section. SECTION 5. Act subject to petition - effective date - applicability. (1) This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly (August 6, 2014, if adjournment sine die is on May 7, 2014); except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2014 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor. (2) This act applies to conduct occurring on or after the applicable effective date of this act.