This is the time of year when we look ahead and consider whatthe New Year might bring. For property and casualty insurers,projecting compliance issues that might impact the business ofinsurance in 2011 essentially requires a "regulatory reflection" ofthe past year.

What this reflection will show is a continuum of stateinitiatives, with a very specific focus in the areas of totalclaims clarification; use of credit information by insurers inunderwriting and rating; and anti-fraud measures.

Implementation of total loss settlement clarifications went intoeffect on Jan. 1, 2010 for insurers writing motor vehicle insurancein Oregon, with specific information required to be disclosed to claimants.

Connecticut continued the focus with legislation in 2010 byrequiring insurers, as of Jan. 1, 2011, to provide written noticeto claimants including the insurance company's calculation of thevehicle's total loss, a valuation report, and a notice to disputethe claims settlement.

Oklahoma added further clarification concerning thedetermination of vehicle replacement cost in the local market areaif the vehicle is currently or recently available in the prior 90days.

Efforts aimed at further restricting the use of credit information by insurers also occurred in2010.

The National Association of Insurance Commissioners (NAIC) madeplans for a multi-state data call, various states proposedadditional restrictions, and some limitations on the use of creditwere enacted. Connecticut and New Hampshire are two states withenacted legislation in 2010 (effective Jan. 1, 2011) that saysinsurers are not permitted to take specified adverse actionsagainst insureds or applicants based solely on certaincredit-related information.

Closely related to this type of restriction is the increasingfrequency with which states have been adopting requirementsassociated with taking "extraordinary life circumstances" intoaccount when using credit information. Connecticut, Iowa, Kansas,and New Hampshire all took steps in 2010 to ensure suchconsideration was given when requested in writing by the consumer,with Connecticut further requiring, effective July 1, 2011 awritten disclosure be provided by insurers at policy issuance thatincludes:

1. Insurer name, address, telephone number, and toll-freetelephone number;
2. Details about how credit information is used to underwrite orrate; and
3. Summary of consumer protections regarding the use ofcredit.

With ongoing instances of insurancefraud — due in no small part to the economic conditions — as ofyet unabated to any significant degree, states are continuing totake affirmative steps to combat fraud with new activity inArizona, Louisiana, and Rhode Island in 2010.

In Arizona, it is now a crime for an auto glass repair shop tobill an insurer for misrepresentations on a repair of anautomobile.

Effective Jan. 1, 2011, Louisiana now requires insurers tosubmit fraud plans to its Department of Insurance (DOI). Such plansmust outline specific procedures, actions, and safeguards, as wellas include how the authorized insurer will:

• Detect, investigate, and prevent all forms of insurancefraud;
• Educate appropriate employees on fraud detection and theinsurer's anti-fraud plan;
• Provide for fraud investigations;
• Report a suspected fraudulent insurance act to the DOI andothers; and
• Pursue restitution for financial loss caused by insurancefraud.

Finally, Rhode Island is currently requiring insurers to haveanti-fraud initiatives in place for the detection, reporting, andprevention of fraud. Such measures may include fraud investigators,who may be insurer employees or independent contractors, or simplyan anti-fraud plan.

With this as our backdrop, what might 2011 bring?

We can expect a continuing focus on the primary areas we saw in2010: clarification in the claims process, additional restrictionsand considerations when credit information is used by insurers inrating and underwriting, as well as new anti-fraud initiatives orfurther strengthening of existing ones.

Unfortunately economic conditions remain ripe for instances ofinsurance fraud to continue. There are still a number of statesthat do not require insurers to maintain an anti-fraud plan,although those states may have other anti-fraud initiatives inplace.

Anticipating additional regulatory action across the states in2011 is not unreasonable, given the current frequency of insurancefraud. Additionally, consumer protection and the claims processremain top priorities with the states. Motor vehicle claims inparticular continue to be a majorsource of consumer complaints. 

Ensuring that additional and pertinent explanatory informationis consistently provided to claimants benefits all involved fromthe insurer to the regulator and, of course, the claimant.

Kathy Donovan is seniorcompliance counsel for Insurance Compliance Solutions at WoltersKluwer Financial Services. She may be reached at [email protected],or at 800-481-1522, ext. 246689.