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Walking the Compliance Minefield and Surviving the Market Conduct Exam Walking the Compliance Minefield and Surviving the Market Conduct Exam

Walking the Compliance Minefield and Surviving the Market Conduct Exam - PowerPoint Presentation

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Walking the Compliance Minefield and Surviving the Market Conduct Exam - PPT Presentation

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

examination market conduct analysis market examination analysis conduct state amp company regulatory insurance information exam claims mawg companies regulators

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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 SettlementSlide33
Slide34

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 RecordsSlide38
Slide39

Polsinelli provides this material for informational purposes only.  The material provided herein is general and is not intended to be legal advice. Nothing herein should be relied upon or used without consulting a lawyer to consider your specific circumstances, possible changes to applicable laws, rules and regulations and other legal issues. Receipt of this material does not establish an attorney-client relationship. 

Polsinelli is very proud of the results we obtain for our clients, but you should know that past results do not guarantee future results; that every case is different and must be judged on its own merits; and that the choice of a lawyer is an important decision and should not be based solely upon advertisements.

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2018

Polsinelli PC. In California, Polsinelli LLP.

Polsinelli is a registered mark of Polsinelli PC