Insurers can and must improve their claims-handling andunderwriting practices in several key areas. That's the messagemarket conduct regulators are sending to both life and health andproperty and casualty (p&c) insurers.

When the regulatory experts at Wolters Kluwer Financial Servicesreviewed and analyzed the results of last year's state marketconduct exams, two criticisms were cited most frequently: p&cinsurers' failure to handle claims within specified time frames andtheir use of unapproved forms and rates.

The Waltham, Mass.-based compliance and risk management servicesprovider condensed the findings of its annual report to a “top 10”list in order to create an easy reference to assist insurersseeking to minimize their compliance risk exposure. When asked toexplain what may be preventing insurers from staying compliant,Kathy Donovan, senior compliance counsel of insurance at WoltersKluwer Financial Services, had this to say:

“The regulatory landscape is getting more complex as industryrequirements and laws change constantly under the direction ofgovernment and industry oversight,” she explained. “[This makes] itextremely challenging to embed regulatory requirements into claims,underwriting, and distribution processes. [However] strongregulatory change management processes and frequent self-audits areextremely effective in helping [insurers] stay on top of thesechanges.”

In addition to the complaints noted below, regulators criticizedinsurers for the manner in which they maintain complaint handling;their failure to provide requested data to market conductexaminers; and a failure to conduct business in their “ownname.”

This marks the ninth year that Wolters Kluwer has compiled thereport. Shortly after the firm released these findings,Claims caught up with Donovan, who elaborated onregulatory issues central to claims handling:

Are carriers typically reluctant to utilizeself-audits?

A specific self-audit privilege actually exists in a limitednumber of states. However, regardless of that limited provision,insurers can and do perform compliance audits to assess theircontrols on the state multiple requirements. Generally, I believeit is reasonable to expect that the scope and frequency of suchaudits vary among insurers.

In this report, you cite criticisms about how insurers handlecomplaints. Would you be more specific?

Insurers are generally required to maintain complete complaintregisters (refer to NAIC Model 884.) The register's data elements,among others, include line of business, date received, date closedand company disposition.

• Two Insurance Department complaints were not logged on thecompany complaint log.

• Four complaint files were in violation of 215 ILCS 5/143d. Tworesponses were sent after 21 days and two responses were not in awritten format as required.

• Initially failed to fully co-operate with the Department intheir investigation of the complaint

What about the alleged 'failure to provide requesteddata to market conduct examiners'? Could there be a plausibleexplanation as to why carriers are sluggish in responding orotherwise non-compliant?

The primary reason for this type of criticism appears to bedifficulties in locating, and therefore producing, the documentswhich were requested during the exam process. This underlyingreason ties in with compliance challenges associated with overallfile documentation and record retention processes.

What exactly does 'failure to conduct business in theirown name' connote?

This situation most often occurs when another company'sletterhead and/or identifying logo, typically from another companyin the group, appears on a policy or other document provided to apolicyholder or claimant. Examples of “own name” violationsfollow:

• The Companies are subsidiaries and/or affiliates of a largerinsurance group. The Companies failed to properly identify thecorrect underwriting name in their claims communications.

• The Companies are subsidiaries of a larger insurance group. TheCompanies mailed correspondence in these instances that failed toidentify the underwriting Company handling the claim.

• The Company representative chose the wrong letterhead for a formletter that was sent to the named insured

• Correspondence sent after {date} referenced the underwritingCompany as {Name} rather than the new legal name of the Companywhich is {Legal Name of Company}.

A good deal of the complaints pertain to claimshandling. What is happening here?

The claims function in an insurance company involves many andvaried compliance elements, with each one each one presentingchallenges concerning identification and implementation, as well asmonitoring for changes. Meeting the timely claim handling and thenotice and disclosure requirements, although seeminglystraight-forward and clear, require consistent adherence topolicies and procedures. The criticisms that are included in theserecent exams demonstrate that sometimes there are problems—such aslack of adherence—with either the existing processes and/or thatthe processes are not up to date in terms of current staterequirements.

What can chief claims officers and supervisors do tomitigate exposure and ensure compliance?

Managing claims compliance risk compliance requires acomprehensive database of all claims requirements applicable tospecific lines of business, along with a reliable source deliveringupdates to those state requirements. Additionally, regular auditsof the claims function can greatly assist in identifying problemsbefore an exam commences or a consumer complaint is filed.

Does 'failure to pay total loss claims properly' imply thatcarriers are underestimating the value of totaled vehicles?

Many of these criticisms involve a failure on the part ofinsurers to include all applicable fees and taxes that comprise atotal loss payment.

What about proper claims documentation?

Claims files should contain evidence of all communication to andfrom the insurer. This includes documents such as requireddisclosures and proof of loss forms.