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KONA, Hawaii-Market conduct is the issue of the decade for managing general agents-especially as long as the soft market continues.

While the unscrupulous conduct of agents and brokers selling life insurance may have grabbed headlines so far, market conduct should be a concern of those dealing in property/casualty lines as well, said Bill Marcoux, legislative counsel for the American Assn. of Managing General Agents.

"I urge you all to study your operations carefully," Mr. Marcoux, an attorney with LeBoeuf, Lamb, Greene & MacRae in San Francisco, said during a conference session. "Make sure you document what you're doing. This is not just a life insurance issue."

Separately, James Ryan, 1997-1998 president of the AAMGA and president of Market Finders Insurance Corp. of Louisville, Ky., also observed that "market conduct definitely is a serious problem today."

However, Mr. Ryan believes market conduct is a bigger problem for insurance companies than wholesalers, especially AAMGA members.

"It would be impossible for anyone who follows our code of ethics to intentionally violate market conduct," Mr. Ryan asserted during a roundtable discussion held during the AAMGA's annual meeting May 18-22 in Kona, Hawaii.

In fact, the association's bylaws recently were strengthened to require recertification if there's a majority change of ownership in an MGA, pointed out Charles T. Deering, immediate past president of the AAMGA.

While so far no member of the association has been "booted," the board has asked at least one member not to try to renew its membership, said Mr. Deering, who declined to identify the organization.

Among the circumstances that might lead to such requested non-renewal of

AAMGA membership are serious financial problems or unethical activities.

In an effort to protect themselves from accusations of unscrupulous conduct, Mr. Marcoux suggested that managing general agents put a senior-level executive in charge of ensuring regulatory compliance.

That person not only should "ensure that your operations are being conducted fairly-certainly within the scope of the law-but also that you are. . .insulated from attacks either by insurance regulators, claimants attorneys or others," he advised those attending the AAMGA's annual business meeting.

Mr. Marcoux also urged the organization's members to become more politically active as they increasingly become the focus of regulators' and legislators' attention.

"You will be asked repeatedly what your position is on particular issues," Mr. Marcoux said. "The challenge of the AAMGA will be in picking leaders who can build a consensus around those issues."

For example, while the AAMGA has focused much of its attention on the activities of the National Assn. of Insurance Commissioners, the federal government is beginning to assert its influence over the sale of insurance, according to Mr. Marcoux.

The Department of Housing and Urban Development "is particularly concerned about redlining," he said, referring to the illegal practice of denying property coverage to businesses and homeowners in inner-city neighborhoods.

"We may see comprehensive financial services reform legislation" in an effort to prevent perceived redlining activity, Mr. Marcoux warned.

Furthermore, "there is a debate in this country and in the international markets about how financial services should be run," he said.

"The push is coming from our international trading partners who believe we have an obsolete system of firewalls between the various financial services," he said.

Mr Marcoux also advised MGAs to become familiar with the various proposals to deregulate commercial insurance.

Fortunately, "the ball is still in the air with respect to deregulation," Mr. Ryan said during the roundtable discussion. "But once a proposal is on the table, we're going to have to be prepared."

Mr. Deering questioned the necessity of insurance deregulation, however.

"We already have a deregulated market-the surplus lines industry," he asserted.

He also pointed out that even with the current regulatory structure, "we're experiencing the softest market in the history of the industry. So what's the problem?"

Mr. Deering predicted the AAMGA and the National Assn. of Professional Surplus Lines Offices, both based in Kansas City, Mo., eventually will collaborate on a joint position paper opposing deregulation.

"We're for state regulation, not federal regulation, and deregulation would invite federal regulation," he said.

But even as the issue of insurance regulation is debated in Washington, the AAMGA still has to keep its eye on state lawmakers and regulators, many of whom who "have a profound misunderstanding of how this market operates," Mr. Marcoux said during the business meeting.

"This is evidenced most clearly and most recently when the NAIC adopted in December what they called their 'Unauthorized Entities Manual,'" according to Mr. Marcoux.

"This is supposed to be a book to help insurance department examiners, fraud investigators and others tackle insurance fraud, a laudable undertaking. But the NAIC's unauthorized manual is filled with inaccurate statements about the roles of MGAs, surplus lines insurers, surplus lines brokers and others."

Fortunately, the chairman of the NAIC's Unauthorized Insurers Committee called Mr. Marcoux two weeks ago and offered to work with the AAMGA and NAPSLO-both of which filed comments noting the inaccuracies-in redrafting the manual, Mr. Marcoux said.