Insurers Ignoring Fed Rules Problems

By Mark E. Ruquet

NU Online News Service, July 9, 12:53 p.m. EDT?Compliance with federal regulations does not appear to be a big focus for insurers and it should be, says the author of a recent study.[@@]

Jamie Bisker, research director of the Insurance practice at TowerGroup in Needham, Mass., said he has been surprised by executives' nonchalance toward the subject.

Mr. Bisker is the author of "Recent Regulations Affecting the Insurance Industry," which examines the costs and technology needs involved in meeting the requirements of new federal regulations and the price and penalties for failure.

"The thing that I have noticed that has changed [since the report was first published in February] is that a lot of carriers are not particularly nervous about this," he said. "They are not putting the emphasis on it that carriers were putting on it when I spoke to them last (while putting the report together)."

The reason they are not worried, he felt, is that many carriers feel confident in their compliance systems and that they can fulfill the reporting requirements as they come along.

"It all depends on where you are at with your compliance group, how automated you are in your reporting capabilities, and efforts you have already made," Mr. Bisker observed.

"If you have already made the investment in infrastructure, you are further along than someone who has not," he commented.

The report, Mr. Bisker said, is important for those who have not thought about it enough or are just beginning to look into the subject.

His report states that companies can try to meet the needs for compliance through modification of existing systems or manually try to keep up, but such solutions are "?inefficient and uneconomical."

"The time is rapidly approaching when the complexity of financial services transactions and the need for accurate analysis can only be tackled with the assistance of automation," he concluded.

Depending upon how far advanced a carrier's technology is, the cost to get up to speed in providing the proper information can run anywhere from a few hundred thousand dollars to several million.

An example Mr. Bisker used to illustrate the point was the Gramm-Leach-Bliley Act privacy provisions that cost the U.S. insurance industry more than $150 million to implement.

While segments of the USA Patriot Act have been interpreted liberally for insurers and agents, segments of it can still prove costly in the future, especially if there is a failure to comply, according to the report.

In one case, Guy Carpenter, a subsidiary of Marsh & McLennan Co., paid a civil fine of $50,000 in Oct. of 2003 for failure to retain funds in an interest bearing account and for some unauthorized payments to interests in Iraq. The information is available through the U.S. Department of the Treasury, Office of Foreign Assets Control Web site.

The cost of violations of federal regulations can range from $5,000 to $1 million per incident for civil fines, and up to $10 million for criminal penalties for corporations. Personal criminal transgressions can include fines and up to 12 years in prison.

There are two areas where Mr. Bisker thinks insurers need to concentrate their compliance efforts for the future.

One area that needs attention from property-casualty insurers is the Health Insurance Portability and Accountability Act privacy provisions that cover communications to and from doctors and information related to personal injury cases.

The other area of concern for the p-c industry in the future, he noted, is damage from fraudulent claims. While the Patriot ACT regulations are concerned with money laundering schemes through life insurance vehicles, he fears that terror groups could find insurance fraud a lucrative vehicle to finance their aims.

"[Insurance fraud] is a $20 billion-plus industry, and I think someone like al-Qaida might be interested in $20 billion worth of revenue," he remarked. "My point is that a successfully run fraud ring could be financing terrorism."

The bottom line for insurers, he said, is that carriers need to follow compliance regulations or it could cost them.

"Insurers have always had to do it; it's part of the way they are," he said. "Do your job; do what you are supposed to do and you won't have to pay these fines."

Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader

Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
  • Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
  • Educational webcasts, white papers, and ebooks from industry thought leaders
  • Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.