Presented By Jennifer Osborn Nix Polsinelli and Matt Gendron RI Division of Insurance Purpose of Regulatory Action An issue or practice is identified that is perceived to cause consumer harm ID: 698669
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Slide1
Walking the Compliance Minefield and Surviving the Market Conduct Exam
Presented By: Jennifer Osborn Nix (Polsinelli) and
Matt Gendron (R.I. Division of Insurance)Slide2
Purpose of Regulatory ActionAn issue or practice is identified that is perceived to cause consumer harm
Regulators determine their goal
Discontinue the practices
Remediate
Reinstate
Penalize
A response is developed to address regulators’ concerns
Individually tailored
Mitigate and remediate the harm to consumers Slide3
Regulatory Responses Continuum
Correspondence
Interviews/Meetings with Company
Reviews of Self-audits
Surveys
Policy and Procedure Reviews
Interrogatories
Desk Audits
Targeted Exams
Comprehensive Exams
Multi-State examsSlide4
ExaminationsSlide5
Understand the Exam ProcessImportant to know why an examination has been called
Help to prepare for the exam
Help to formulate responses to inquiries
Exam notice should specify the scope of the exam
If an examination is anything other than a routinely scheduled exam, it may be helpful to obtain information about why the examination was called.
Complaints
Regulator concerns about an industry, line of business, or the company
Interest from federal agencies or attorneys general or litigation
Market analysis Slide6
ComplaintsComplaints may be a reason for an examination or may result in the expansion of an ongoing examination
An examination may be triggered by a single complaint, by complaint trends, or may be industry-wide
Tracking complaints may help identify root causes that may prevent examinations if corrected
The manner in which complaints are handled may help avoid escalation to an examinationSlide7
Market Conduct Lifecycle
Step 1: Baseline Analysis
Uses the MAPT tool, taking into consideration MCAS data, complaints and feedback from other areas of the Department
Step 2: Prioritization
The Department lists in order the Companies for MARS analysis based on the baseline, risk or priorities of the Department
Step 3: Market Analysis Reviews (MARS)
Step 4: Possible “MARS Level 2” or Continuum Inquiry
Step 5: If Warranted, Consider Market Conduct ExamSlide8
Market Analysis
NAIC’s Insurance Regulatory Modernization Action Plan (2003) stated the goal of market analysis is:
To “…to assess the quality of every insurer’s conduct in the marketplace.”
Market Analysis is a structured and formalized system of collecting, organizing, and analyzing data and other information to enable regulators to identify general market disruptions and specific market conduct problems as soon as possible, while maintaining an efficient and effective regulatory framework. - NAIC presentationSlide9
Market Analysis
Market Analysis Focuses on impactful events at companies, including:
Management changes
Mergers/consolidations
RBCs and financial analysis
Significant premium increases/decreases
National frequency of MCE’s
Market share trends
Loss and expense ratios
Confirmed complaint index trends
Agent complaint increases
Publicized litigation or media coverage of issuesSlide10
Market Analysis Tools
Market Conduct Annual Statement (MCAS)
Annual collection of company claims and underwriting data
Private Passenger Auto; Homeowners; Life & Annuity; and Long Term Care
Health –
first reporting date September 30, 2018
Market Analysis Prioritization Tool (MAPT)
Used to prioritize companies, includes weights and ranking for baseline analysis
Market Analysis Review System (MARS)
Guided analysis tool using linked market data, shared with other jurisdictions once completed
Market Analysis Profile (MAP) reports
Summary of Market Data, used in baseline analysisSlide11
Other Regulator Databases
iSite
– Main financial and market conduct database used by regulators
Market Action Tracking System (MATS)
Aggregates information on current actions and exams, company contact information, and makes market actions of other jurisdictions available to regulators
Complaints Database System (CDS) – Information on company complaints
Feeds into publicly available Consumer Information Services (CIS) data
Regulatory Information Retrieval System (RIRS)
Info on regulatory orders and fines, information is publicly available
Online Fraud Reporting System (OFRS)
Receives data from NICB, NHCAA, industry and consumers
As of 2010, had been receiving 100,000+ referrals a yearSlide12
Impact
Significant financial risks related to market conduct examinations.
Market conduct fines may range from a few thousand dollars to multi-million dollar penalties.
Insurers bear the costs of market conduct examinations.Slide13
Market Conduct Settlement FinesMissouri: $4.5M fine of two affiliated companies for failure to provide mandated autism and abortion benefits
Indiana
: $200K fine and $2.75M in refunds for a group of companies
California
: $173.6M fine of another group of companies in 2014 for violations of the Unfair Business Practices Act and Unfair Claims Settlements ActSlide14
California $173M FineThe California Commissioner’s decision imposing the $173.6M fine included the following statement:
CDI contends [Company]'s push for savings resulted in a total breakdown in customer service and claims administration. CDI argues [Company] failed to properly vet and oversee outside vendors, resulting in poorly planned integration and thousands of violations. CDI further argues [Company] refused to invest in operational infrastructure and employee retention, causing corrupted provider data and a lack of institutional knowledge and consistency. Lastly, CDI asserts [Company] failed to adequately remediate the rampant corporate defects, demonstrating a callous indifference to California consumers and regulators. CDI contends these alleged failures, taken as a whole, led to an unprecedented one million violations of the Insurance Code.Slide15
Market Conduct Settlement Fines
Illinois
: Director announced more than $10M in market conduct fines collected in 2012
Represents significant increase in fines collected over past several years
Department indicated it would continue to ramp up market conduct examinations
South Dakota
: $325,000 fine against an insurer for LTC violations (2013)
“The monetary penalty is the largest for a South Dakota initiated market conduct examination in state history.”
Montana
: $250,000 fine against another health insurer (2014)
“The largest of its kind for a market conduct exam in Montana history.”Slide16
Examination ProcessCall Letter
Pre-Exam Work
On-Site/Off-Site Review-Sampling Method
Draft Report
Exception
Reports by Test
Published Report
Post-Exam Compliance / Remediation Slide17
NAIC Exam Standards
The NAIC Market Regulation Handbook lists out standards for examiners to apply during exams in Seven Areas
These Standards apply to any exam, and the Handbook identifies examination standards for each individual line of business
A. Operations/Management
E.
Policyholder
Services
B. Complaint Handling
F. Underwriting and Rating
C. Marketing and Sales
G. Claims
D. Producer LicensingSlide18
Handling the ExaminationPrepare for the Examination
Understand the scope and the reason it was called
Discuss the objective with examiners or regulators
Review similar examinations
Engage in constructive dialogue regarding concerns
Ask questions regarding production
Proactively raise topics of concern
Analyze any adverse determinations
Determine if the facts and information is correct
Confirm the lawSlide19
Focus of a Health Exam
Company Operations & Management
Form Filing
Marketing & Sales
Underwriting & Rating
Policyholder Services
Claims Handling
Complaint Processing
Grievance Procedures
Network Adequacy
Provider Credentialing
Quality Assessment & Improvement
Utilization Review
Producer Licensing Slide20
How Times Don’t ChangeSlide21
10 Most Frequent Violations - L&H InsurersWolters Kluwer
Failure to timely acknowledge, pay, investigate, or deny claims
Failure to provide required claims & underwriting disclosures
Use of unfiled/unapproved or noncompliant policy forms
Improper documentation of underwriting and claim files
Failure to adhere to required claims grievance and appeal processes, including timeframes and disclosures
Failure to respond to regulatory requests for information
Failure to use licensed/appointed producer and follow appointment requirements and maintain documentation
Noncompliant claim denial notices
Failure to adhere to replacement requirements
Failure to pay claims properly per policy provisions
Slide22
Rise of the Multi-State Examination
Purpose
Collaborative method for regulators in multiple states to investigate issues or companies of national interest
Benefits
Efficiencies of scale
Reduced costs
Consistent resolution
Development
First multi-states examinations occurred between states
In 2003, General Accounting Office (GAO) report stated that market regulation needed improved coordination
NAIC developed Insurance Regulatory Modernization Action Plan – formed the Market Actions Working Group (MAWG) under the Market Regulation and Consumer Affairs (D) CommitteeSlide23
Multi-State Examinations
ABC Insurance Company (2012)
44-state examination lead by Florida, Iowa, Minnesota, Missouri
$10M penalty
Involved suitability in the sale of “two-tier” fixed annuities
DEF Affiliated Insurance Companies (2012)
41 states lead by Iowa, Ohio, Pennsylvania, New Jersey and Minnesota
$39M to $51M fine based on number of participating states
Involved the sale of accident and health insurance
GHI
Insurance Company (2014)
10 state examination lead by Missouri
$1.8M fines; $2.7M consumer restitution pool
Involved bundling of life products with health products to small employers
JKL
Insurance Company (2013)
5 states: California, Connecticut, Maine, Massachusetts and Pennsylvania
Pay up to $77M re-evaluating disability claimsSlide24
MAWGMeets at closed sessions of the NAIC meetings to
Share information regarding identified or potential issues
Promote a targeted regulatory response
16 individuals chosen for their regulatory experience
Uses a confidential, regulator-only Policy and Procedures Manual
Works closely with Collaborative Action Designees (CADs) appointed by each state
Frequently the Chief Market Conduct Examiner or CounselSlide25
NAIC Working GroupsSometimes, a temporary NAIC Working Group is formed to handle large issues:
Life insurance sales to military members
Use of retained asset accounts
Stranger-owned life insurance
Use of the Death Master File to settle life and annuity claims
Cybersecurity Slide26
MAWG – Request for Action
State submits referral form to request action after conducting investigation and market analysis.
NAIC staff review the referral and create a packet of information for MAWG members to review.
State presents request to MAWG for discussion and voting.
If accepted, Lead States and Managing Lead State are appointed.
MAWG discusses regulatory response continuum options.
Lead states coordinate proposed action and resolution.Slide27
Multi-State Examinations
Multi-State Exams since 2004 have involved:
All types of insurance
Practices related to fraud, false advertising, producer licensing/appointment, agent training, and improper denial of claims
Typically resolved through settlement:
Corrective action plans
Audits
Re-adjudicate and/or refund claims
Provide restitution
Lump sum fines/penaltiesSlide28
Examples of MAWG in Action
Recent MAWG settlements have included:
Regulatory Settlement Agreements (RSAs) with:
11 Travel Insurance providers, covering virtually the entire market
2 Lender Placed Insurance providers, covering most of the market
30 Life Insurance companies with Death Master File cases, of which four settled in 2016 and four more in 2017
Example of a Unique recent MAWG Settlement
A life insurer offered Limited Benefit Health products, and worked with a TPA who provided the distribution channel access
The insurer settled with MAWG for a lump sum ($5 million) but also agreed in the RSA to cooperate with the investigation into the TPA/distributorSlide29
MAWG’s Wider Utility
MAWG can also provide a venue to address confidential concerns with regulators
Several companies have used MAWG to make presentations on areas of new regulatory concerns or to make a self-report to many regulators at once
Group or individual settlements have resulted
Its still relatively new, but several companies have made MAWG presentations and provided information to regulators. Time will tell if this trend continuesSlide30
Areas of Focus for Multi-State Exams
Sales, Advertising,
& Marketing
Point of Sale Practices
& Disclosures
Complaints
Rating & Underwriting
Claims Handling
Policyholder Services
Terminations
Privacy & Security Practices
Fraud Prevention Practices
Producer Licensing and Appointments
Vendor Monitoring & Management
Unclaimed Property
Annuity Suitability
Replacements
Management, Operations, & ControlSlide31
Resolving a Multi-State Exam
Future compliance expectations/obligations
Scope of corrective action
Confidentiality of resolution
Synchronizing
Civil Litigation
Other Regulatory Actions
State-specific compliance issuesSlide32
Examination TipsPrepare for the Exam
Proactively Control the Flow of Information
Pay Attention To Detail & Provide Consistent Answers Across The Company
Cooperate
Negotiate the Final Content of the Report of Examination or SettlementSlide33Slide34
Compliance ObstaclesMonitoring and implementing legal and regulatory changes
Out-of-date or missing policies and procedures
Failure to maintain remedial actions
Inadequate controls
Manual vs. automated implementation
Complex processes
Compliance engagement throughout organizationSlide35
Build a Compliance Culture
Create an ongoing commitment to compliance
Link performance review process & compensation to compliance goals
Audit regularly for compliance
Emphasize importance of documenting claim files and complying with requirements
Research and implement new laws and regulations and update proceduresSlide36
Communication
A proactive measure to reduce the likelihood of a multi-state examination is regular meetings with domestic state regulator, especially the market conduct examination section.
Encourage regulators to inform the Company if there are ever concerns well before an issue grows to the level that it would be taken to MAWG. Slide37
Examination TrendsCyber Security Issues
Surveys & Data Calls
Requests for Disclosure of Internal Audits & Confidential Information
Use of Outsourced Examiners
Need for Data Management
Retention of Social Media RecordsSlide38Slide39
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