With Kathy Donovan, senior compliance counsel, Wolters Kluwer financial services.
Why does your annual always include so many claim-related conduct issues?
Claim-related issues have a definite recurring presence in our annual reports of market conduct issues. Insurers are required to perform many detailed, time-sensitive steps during the claim process, from acknowledging the claim and providing required forms and disclosures, all the way to final payment and file documentation. Each step in each state, multiplied by the sheer claim volume processed by property and casualty insurers, can easily become missed compliance opportunities. These "possibilities for noncompliance" frequently become the reality we see annually in market conduct exam findings.
One of the top criticisms raised was that insurers failed to pay the appropriate claim amount. Is the problem really that prevalent? Should insurers focus on improving this area first?
Some underlying reasons for insurers' failing to pay the correct claim amount lies in them using the wrong sales tax and/or out-of-date motor vehicle fee structure in the calculations for total losses in motor vehicle claims. Also, workers' compensation claim payments are often not paid according to the required schedule or are terminated prematurely, which results in overall lower payments to claimants. So while the underpayment appeared to be a problem for insurers, when exploring ways to improve claim compliance, I believe it is difficult to segregate the actual benefits payment component from the key timely claim-handling requirements.
Rather than focusing on what would generally be regarded as one of the last steps in the claim process, a holistic view would want to identify the compliance elements that are frequently cited by examiners. So, looking at the top 10 areas, with specific focus on the claim-related ones, it becomes clear that understanding and incorporating the various state-specific timely claim-handling requirements, the notices and disclosures that must be provided to claimants, the ongoing file documentation, as well as the ultimate payment, demand attention. Insurers can think of the list as a claim compliance roadmap. It shows not only hazards to avoid (i.e. perennial criticisms), but also helps insurers plan a route to get them where they want to be--that is, "criticism-free" at the conclusion of market conduct exams.
What role can technology play in reducing the number of criticisms in a market conduct report?
Insurers can use technology to audit their existing claim processes against state requirements for timeframes and payment elements, such as sales taxes and fees, which can help identify problem areas prior to an exam. Companies implementing immediate corrective action upon learning of noncompliant processes are then in a position to demonstrate steps taken to remedy the problem, which can potentially mitigate fines.
Over time, as proactive audits become the norm and problems are corrected instead of being uncovered during an exam, it's very likely an insurer would see a decline in criticisms in the market conduct exam process. Technology could also play a role in making sure that the compliant claim processes insurers have established actually remain in compliance. Delivering and incorporating regulatory updates is often best sourced through a reliable technology tool. Combining both of these technology functions can promote confidence in a company's systems, tempered by the knowledge that there are routine validations to ensure ongoing compliance.
What are some ways that insurers can build a better program to maintain regulatory compliance?
The following four elements are key to building a successful and sustainable regulatory compliance program: The first is reliable and timely delivery of new and revised statutory and regulatory requirements, which provides the awareness level insurers need.
Second, there needs to be a monitoring and reporting system functionality that allows for tracking the implementation of required processing changes. This allows the insurer to confirm that those new requirements were delivered to the right compliance area and that proper controls are established.
Third, there should be routine compliance audits designed to test the controls that were established to ensure that the company meets (or beats) state-mandated timeframes, provides all required disclosures--such as subrogation, statute of limitations, and right of review--and remits the correct claim payment. This will identify areas for immediate improvement and corrective action before any exam takes place
Last, a corporate standard should be in place that requires immediate and proactive implementation of all corrective actions for issues uncovered during an exam. This demonstrates an insurer's commitment to compliance.
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|Title Annotation:||SPEAKING OF: MARKET CONDUCT EXAMS|
|Date:||Nov 1, 2010|
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