Plan For Market Conduct Exams

State insurance departments have been aggressive with market conduct examinations in personal lines (auto and homeowners). We have seen a marked uptick in the frequency of calls asking us to prepare researched responses to the market conduct issues and to negotiate with the examiners to minimize fines, as well as to temper the severity of corrective action plans.  We have noticed a couple of recurring behaviors that companies can avoid so as to create a productive rapport with their examiners.

  1. Plan for the examiner’s access to your data and files.  When the examiners ask for access and are told that they cannot have access due to security concerns, it sets the tone for a contentious exam.
  2. Be assured that the examiners will look at the criticisms documented in your last exam to see if the corrective action you said would be taken was in fact taken.  Too many times I have learned that the company has initiated corrective action but did not do a follow-up internal audit to ensure that I.T. understood the request and programmed the correction as promised; or that claims created a written claims handling procedure but did not effectively communicate the change or provide training where needed.
  3. The examiners are not lawyers, but if you can provide legal authority to support your position, the examiner will get guidance from people knowledgeable about the law.  Argument without support is not as persuasive as argument with legal support.  It also helps your argument to point out where your company’s approach is more favorable to the consumer than the practices of other companies.
  4. Corrective Action Plans imposed as a result of market conduct examinations can be very complex, creating significant cost burdens and demands on I.T. programming capacity. However, the insurer who has shown their commitment to compliant operations by correcting errors identified during the exam before the exam is completed will fair better when it comes time to negotiate to minimize the sanctions and fines. The tactical lesson here is that if you have limited I.T. resources, reserve some of that I.T. capacity when you know an examination is scheduled so that they can be called upon for immediate action. The strategic lesson here is that you need to have an I.T. infrastructure that enables state-specific programming. Organizations that have standardize programming across multiple states often encounter obstacles to programming a state-specific compliance requirement because a change for one state adversely affects other states. This comes up often with respect to cancel notices, nonrenewal notices, other notices to insureds, Application forms and Declaration forms.

For assistance with market conduct exams or revising your forms or procedures, please contact Jeff Nash at (440) 759-0817. The Nash Group LLC wants to be one of your resources to maintain compliance in your insurance operations.