Calif. Amendments On Claims Handling 'Unfair'
NU Online News Service, May 10, 9:30 a.m. EST?The California Department of Insurance's proposed amendments to the state's fair claims settlements practices regulations exceed its authority and would prevent insurers from settling claims in a prompt, efficient, and fair manner, according to the National Association of Independent Insurers.
Sam Sorich, senior vice president and general counsel for the Des Plaines, Ill.-based association, voiced NAII's concerns about the proposed amendments at an insurance department hearing this week in San Francisco.
"Existing regulations set forth procedures for the insurance commissioner to take enforcement action against an insurer for unfair claims practices that are not specifically defined in the Insurance Code," Mr. Sorich said. "The proposed amendments would allow the commissioner to take enforcement action without any obligation to follow the Insurance Code."
This change, he said, is "not authorized by statute and is clearly beyond the department's regulatory authority."
The department is also proposing amendments to the "proof of claim" standards that would make it difficult for insurers to determine when an insurer's responsibility to accept or deny a claim begins. Such a change, Mr. Sorich said, would blur commonly accepted definitions in current regulations and create vagueness and uncertainty about insurers' claims handling obligations.
According to the state's Government Code, regulations must be "easily understood by those persons directly affected by them," and "in harmony with existing statutes, court decisions or other provisions of law."
Mr. Sorich said that not only are the proposed amendments not easily understood by the insurers that must comply with them, "they are inconsistent with other provisions of the fair claims settlement regulations."
He noted that the amendments state that proof of claim would include "any evidence or documentation in the claimant's possession," meaning that even though no evidence or documentation is in the possession of the insurer, the company would still be obligated to accept or deny a claim.
Mr. Sorich also called into question proposed amendments that would make an insurer responsible for the accuracy of any data that the insurer uses to evaluate a claim. "This is an unreasonable and unfair obligation to impose on insurers," Mr. Sorich said.
Finally, NAII objected to two new proposed regulations relating to use of direct repair body shops. A new provision in the department's proposal precludes insurers from capping claims payments on vehicle repairs when insureds choose to have their vehicles repaired at a facility not recommended by the insurer.
"This is unfair," Mr. Sorich said. "Insurers provide premium discounts to customers who agree to have their vehicles repaired at body shops recommended by the insurer." The new regulation, he said, would allow the policyholder to receive the discount "and then ignore the cost saving feature that supported the deduction."
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