Market conduct exams and investigations performed by therespective state insurance departments can be immensely valuable top&c insurers, on many levels. For one,they provide performance clues and help measure the extentto which carriers are compliant with the dizzying arrayof modified and emerging laws and regulations.Although activity and oversight tend to vary among states,there are many commonalities.

Moreoever, they seem to share many of the samecompliance criticisms pertaining to key areas of the insurancebusiness. When the experts at Wolters Kluwersifted the latest wave of market conduct exam data, they found thatregulators across the U.S. perceived deficits in claims handling,underwriting practices, and other areas.

Surely this comes as little surprise to insurers, who face asomewhat uphill battle in effectively incorporating evolvingregulatory requirements into evolving business processes. So what'san insurer to do in the face of such challenges? Weconsulted Kathy Donovan, senior compliance counsel of insurance atWolters Kluwer Financial Services, to learn more aboutthe recentexam results and how insurerscan successfully navigate a regulatory landscapethat is in constant flux. Here is what she had to say:

How does the feedback from this year'smarket conduct exams compare to those of last year? Are old issuesgaining prominence?

Many issues certainly appear to be perennial in nature,reflecting the multiple and detailed compliance requirements.

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 mention criticisms abouthow insurers handle complaints. Would you be morespecific?

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 providerequested data to market conduct examiners'? Could there be aplausible explanation as to why carriers are sluggish inresponding or otherwise 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 aform letter 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 these 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 claimsproperly' imply that carriers are underestimating thevalue of totaled vehicles?

Many of these criticisms involve a failure on the part ofinsurers to include all applicable fees and taxes thatcomprise a total 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.