This is the time of year when we look ahead and consider what the New Year might bring. For property and casualty insurers, projecting compliance issues that might impact the business of insurance in 2011 essentially requires a “regulatory reflection” of the past year.
What this reflection will show is a continuum of state initiatives, with a very specific focus in the areas of total claims clarification; use of credit information by insurers in underwriting and rating; and anti-fraud measures.
Implementation of total loss settlement clarifications went into effect on Jan. 1, 2010 for insurers writing motor vehicle insurance in Oregon, with specific information required to be disclosed to claimants.
Connecticut continued the focus with legislation in 2010 by requiring insurers, as of Jan. 1, 2011, to provide written notice to claimants including the insurance company’s calculation of the vehicle’s total loss, a valuation report, and a notice to dispute the claims settlement.
Oklahoma added further clarification concerning the determination of vehicle replacement cost in the local market area if the vehicle is currently or recently available in the prior 90 days.
Efforts aimed at further restricting the use of credit information by insurers also occurred in 2010.
The National Association of Insurance Commissioners (NAIC) made plans for a multi-state data call, various states proposed additional restrictions, and some limitations on the use of credit were enacted. Connecticut and New Hampshire are two states with enacted legislation in 2010 (effective Jan. 1, 2011) that says insurers are not permitted to take specified adverse actions against insureds or applicants based solely on certain credit-related information.
Closely related to this type of restriction is the increasing frequency with which states have been adopting requirements associated with taking “extraordinary life circumstances” into account when using credit information. Connecticut, Iowa, Kansas, and New Hampshire all took steps in 2010 to ensure such consideration was given when requested in writing by the consumer, with Connecticut further requiring, effective July 1, 2011 a written disclosure be provided by insurers at policy issuance that includes:
- Insurer name, address, telephone number, and toll-free telephone number;
- Details about how credit information is used to underwrite or rate; and
- Summary of consumer protections regarding the use of credit.
With ongoing instances of insurance fraud — due in no small part to the economic conditions — as of yet unabated to any significant degree, states are continuing to take affirmative steps to combat fraud with new activity in Arizona, Louisiana, and Rhode Island in 2010.
In Arizona, it is now a crime for an auto glass repair shop to bill an insurer for misrepresentations on a repair of an automobile.
Effective Jan. 1, 2011, Louisiana now requires insurers to submit fraud plans to its Department of Insurance (DOI). Such plans must outline specific procedures, actions, and safeguards, as well as include how the authorized insurer will:
- Detect, investigate, and prevent all forms of insurance fraud;
- Educate appropriate employees on fraud detection and the insurer’s anti-fraud plan;
- Provide for fraud investigations;
- Report a suspected fraudulent insurance act to the DOI and others; and
- Pursue restitution for financial loss caused by insurance fraud.
Finally, Rhode Island is currently requiring insurers to have anti-fraud initiatives in place for the detection, reporting, and prevention of fraud. Such measures may include fraud investigators, who may be insurer employees or independent contractors, or simply an anti-fraud plan.
With this as our backdrop, what might 2011 bring?
We can expect a continuing focus on the primary areas we saw in 2010: clarification in the claims process, additional restrictions and considerations when credit information is used by insurers in rating and underwriting, as well as new anti-fraud initiatives or further strengthening of existing ones.
Unfortunately economic conditions remain ripe for instances of insurance fraud to continue. There are still a number of states that do not require insurers to maintain an anti-fraud plan, although those states may have other anti-fraud initiatives in place.
Anticipating additional regulatory action across the states in 2011 is not unreasonable, given the current frequency of insurance fraud. Additionally, consumer protection and the claims process remain top priorities with the states. Motor vehicle claims in particular continue to be a major source of consumer complaints.
Ensuring that additional and pertinent explanatory information is consistently provided to claimants benefits all involved from the insurer to the regulator and, of course, the claimant.
Kathy Donovan is senior compliance counsel for Insurance Compliance Solutions at Wolters Kluwer Financial Services. She may be reached at Kathy.Donovan@wolterskluwer.com, or at 800-481-1522, ext. 246689.