Insurers With Market Conduct Troubles Can Usually Blame Their Claims Shop

Mistakes by claims professionals were the most common reason for enforcement actions taken against U.S. property and casualty insurers in 2018, taking the No. 1 and No. 2 spot on a top ten list issued by the Wolters Kluwer consulting firm.

In fact, five of the 10 top reasons documented by Wolters Kluwer involved errors in claims handling. The Boston-based compliance consulting firm reviewed every market conduct examination and enforcement action taken by state regulators in 2018, said Senior Compliance Counsel Kathy Donovan. The number of individual citations examined numbered in the hundreds, she said.

“The claims area is one combined area that has many moving parts, many individual timeframes — timeframes that aren’t necessarily the same from state to state,” Donovan said. “So it’s no surprise at all that once again failure to acknowledge claims, investigate or deny claims, within specific time frames in the states certainly takes the top spot for the exam process for 2018.”

In order of frequency, the claims-related mistakes that prompted sanctions by insurance regulators were for:

• Failure to acknowledge, pay, investigate or deny claims within specified timeframes.
• Failure to provide required disclosures in claims processing.
• Failure to issue correct payments or proper denial notices.
• Failure to process total loss claims properly.
• Improper/Incomplete documentation of claim files.

Donovan said during a telephone interview that for property and casualty insurers, the commercial auto, personal auto, workers’ compensation and homeowner’s lines drew the most enforcement actions. She said in personnel auto, several states have passed strict notice requirements, especially for claims involving total loss. In workers’ comp, states enforce strict deadlines to ensure that injured workers receive wage-loss benefits.

Donovan said many state insurance departments do not use market conduct examinations but use an informal process to deal with complaints. Other states — most notably California — perform dozens of market conduct exams each year.

Not surprisingly, California was also the location for several of the examples that Donovan mentioned when discussing the findings of Wolters Kluwer’s review during a webinar.

The review found six instances where the California Department of Insurance cited an insurer for failing to disclose all benefits available under a policy or explain the coverage, time limits, and other policy provisions, Donovan said. Also in California, citations were issued because the insurer did not notify claimants that the driver of an insured vehicle was determined to be principally at fault.

“I see this year in and year out as a criticism in California automobile exams,” Donovan said.

New Jersey was the source of some other examples given. In one instance, a carrier had failed to notify a claimant that coverage for a rental vehicle was available. The carrier protested, saying that it informs only its own policyholders if rental coverage is available, but the state examiner said there are no exceptions to the statute.

New Jersey also demands a thorough claim file. Donovan aid one insurer was cited because its adjuster had not included emails concerning the claim in the file. The adjuster countered that the documentation was available within the company’s email server, but the examiner said all of the relevant documents must be in the file.

Another issue cited by New Jersey regulators was examiners putting blank templates of required notices in to the claim file with blanks where the necessary information should have been filled in. Donovan said the examiner found that to be a violation because there was no evidence that the required notice had been sent.

Donovan said she hopes insurance carriers take note of the findings so they can improve their compliance systems. “It helps insurance companies understand the operational challenges that other companies in their lines of business are suffering,” she said.