(Editor's Note: Kathy Donovan is senior compliance counsel for Insurance Compliance Solutions at Wolters Kluwer Financial Services and a regular contributor to PC360.)
The end of yet another year gives all of us an opportunity to review recent legislative and regulatory initiatives and then pause to consider what the next year might bring. As one would expect, 2012 most definitely provided property and casualty (P&C) insurance compliance professionals many new and revised requirements across multiple functional areas. A quick recap of some key updates can assist in identifying the current legislative and regulatory focus and perhaps provide some insight into what 2013 may have in store.
Underwriting Undergoes Changes
Insurers’ underwriting departments, of course, deal with many existing requirements, which often vary widely from state to state. Adding to those requirements are new ones such as those included in California’s AB 2303. Beginning Jan. 1, 2013, the state has effectively deleted the “new business” underwriting period for personal automobile insurance as it pertains to permitted reasons to cancel such a policy. Insurers will now be restricted to using the specific reasons listed in Ins. §661 when issuing a cancellation notice for a policy which has been in existence for less than 60 days.
An upcoming requirement in Washington will affect property insurance cancellations and nonrenewals. Effective April 1, 2013, WAC 284-19-170 will require more information be provided to the insured when an insurer cancels or nonrenews a property insurance policy. Currently, insurers must explain the procedure for making application under the Washington Essential Property Insurance Inspection and Placement Program either in the notice of cancellation or nonrenewal or accompanying such notice. The new mandate requires that the notice of cancellation or refusal to renew must include:
• Contact information for the office of the Washington state insurance commissioner’s consumer-protection services, including the consumer-protection division’s hotline phone number and the agency’s website address.
• A statement that the consumer may contact the office of the insurance commissioner for assistance with questions or complaints.
An upcoming notice requirement in Delaware affects all insurers writing residential property insurance under SB 202. A clear and prominent notice must be provided to such policyholders as to the existence of deductibles for losses caused by wind, hail or hurricanes on or after Jan. 1, 2013. Insurers must disclose relevant details pertaining to the wind, hail and hurricane deductibles, including the trigger of the deductible, regardless of whether it is stated as a percentage or as a dollar amount.
However, if the insurer does use a percentage deductible, then it must provide an example of how it applies to the loss. This new notice requirement applies to each newly issued policy and also to the first renewal after any insurer-initiated change in deductibles for losses caused by wind, hail or hurricanes.
For the past few years, it was not uncommon to see close to half of the states with introduced legislation proposing to restrict or ban the use of credit information in one or more lines of business. However, this year there were substantially fewer states that filed bills advocating such actions. An example of such a bill was Missouri’s HB 1406, which failed to pass. It was drafted to prohibit an insurer from using a credit report or insurance credit score as a factor in underwriting or to take any adverse action based on a credit report or insurance credit score against a person currently insured under an existing insurance contract with the insurer.
One bill that was enacted was Michigan’s HB 4595, with an anticipated effective date of March 20, 2013. Under this bill, when requested by an insured or an applicant, an insurer is required to provide reasonable exceptions to its use of credit information in the insurer’s rates, rating classifications, or company or tier placement for an individual who has experienced and whose credit information has been directly influenced by extraordinary life circumstances. Additionally, HB 4596 requires that an insurer, upon receiving notice, must reevaluate its evaluation of an insured’s credit score information if the established dispute-resolution process determines that the initial evaluation was based on incorrect or incomplete credit information and make necessary adjustments. This second bill also has an expected effective date of March 20, 2013.
Managing Claims Revisions
From new fraud warning statement requirements in Alabama and Maryland to notices and disclosures, states continued to mandate additional provisions. West Virginia’ HB 4486, effective June 8, requires an insurance company to provide a response that includes the name of the insurer, the name of each insured on the policy, the limits of any motor vehicle liability, and the declaration page within 30 days of receipt of a written request from the claimant’s attorney.
New Hampshire’s Administrative Rule Ins 1002.08, effective Dec. 1, 2012 requires that when insurers pay P&C insurance claims, the form of payment must allow the claimant or the insured ready access to claims funds. Insurers do have options available to affect a compliant payment, including using a paper check or draft; direct deposit to a claimant’s or an insured’s financial account with prior verifiable authorization of the insured or claimant; or delivery of a debit card, bank card or other similar card. This latter option has specific disclosure requirements to which the insurer must adhere.
States routinely update “pieces” of the legislative and regulatory requirements applicable to workers’ compensation insurers every year. As a result, workers’ compensation insurers must deal with a fairly steady flow of updates to their underwriting and claims processes. These updates occur without any major reform at the state level, as these changes are often centered on claims issues including mileage reimbursement rates, appeals processes and benefits payable. Workers’ compensation is also a very forms-dependent line of business. In addition to all the legislative and regulatory changes, nearly 300 state-mandated workers’ compensation claims and miscellaneous forms were revised or newly created since the beginning of the year.
Apart from the routine processing of claims, complete with the timely claims-handling and disclosure requirements, insurers must also contend with the changing state statute of limitations. Ohio revised its contract statute of limitations for an action brought upon a specialty or an agreement, contract or promise in writing, decreasing it from 15 to eight years after the cause of action occurred. Wyoming’s HB 14, which was effective July 1, 2012, revised the limitation period for a medical-malpractice wrongful-death claim to mandate tolling of the action upon receipt by the director of the medical-review panel of a malpractice claim.
Our electronic age affects insurers’ regulatory environment, with the impact evidenced by the advances many states have made in establishing requirements for both portable electronics insurance and the regulatory acceptability of an image of a motor vehicle identification card that is displayed on a wireless communication device. States enacting portable electronics provisions this year include Alabama, Arizona, Colorado, Delaware, Hawaii, Idaho, Indiana, Kentucky, Louisiana, Nevada, New Hampshire, New Jersey, Pennsylvania, Rhode Island, South Carolina, South Dakota, Utah, Vermont, Washington and Wisconsin. In addition, other states, including Illinois, Kansas, Maryland, Minnesota, Missouri, Oklahoma and Oregon continued to refine previously enacted requirements.
While portable electronics insurance requirements have been featured in other states in recent years, a more recent development has been the adoption of an alternate electronic proof of insurance as we saw this year in Arizona, California and Idaho. While insurers are not required to provide insureds with this electronic proof, they are permitted to do so. For example, Idaho’s SB 1319 provides that the certificate or proof of liability insurance may be produced in either paper or electronic format, with the latter including displays of electronic images on a cellular phone or any other type of portable electronic device.
The coming year promises to provide us with more legislative proposals aligned with providing additional consumer protection in the areas of underwriting and claims, whether these take the form of mandated consideration of extraordinary life events when using credit information in rating and/or underwriting or additional disclosures or consumer disclosures when using alternate forms of payment in claims processing. Given the electronics-driven environment, it also would not be unexpected to see more states opt for the “new age” display of evidence of financial responsibility on an electronic device.
Regardless of the ultimate enactment and adoption of the soon-to-be-introduced bills and regulatory proposals, P&C insurance compliance professionals will most definitely have challenges to address and evaluate as we meet 2013.