Claims compliance violations seem to be perennial in nature, resulting in internal resources being used to deal with examiner inquiries and corrective action plans, not to mention the direct out-of-pocket cost of assessed fines and per diem examiner fees.

What are some of the repercussions for being out of compliance?

Noncompliance repercussions include potentially significant monetary fines and restitution orders designed to make claimants whole, with accompanying negative publicity when the repercussions are made public. Additionally, noncompliance findings during the exam can result in extended periods of time for the examiners to be on-site, resulting in higher overall exam costs, and increasing the probability of more frequent re-exams to determine if corrective actions were implemented.

What would you suggest insurers do to proactively solve these market conduct exam issues?

Companies performing regular self-audits of their claim processing systems for compliance with each state's requirements by line of business may serve to identify trouble spots before the examiners arrive. The importance of both understanding unique state requirements and implementing a process that delivers on those requirements is illustrated by the following criticism. In this instance, there was an identified breakdown in the process designed to deliver the notice, as well as a breakdown in the content of the notice on the occasions when it was delivered.

For example, California market conduct examiners will cite insurers for the following California-specific violation: “In 68 instances, the company failed to provide the insured with the Auto Body Repair Bill of Rights, either at the time of application for automobile insurance, at the time a policy was issued, or following an accident. Specifically, in 50 of these instances, the Auto Body Repair Bill of Rights was not sent. In 18 instances, the Company sent an Auto Body Repair Bill of Rights letter containing incorrect language. The Department alleges these acts are in violation of CCR ?2695.85.” (September 2008)

To the extent that deficiencies such as these are revealed and corrective actions are implemented on a timely basis, such measures could be viewed in a positive light when an actual exam is performed for that same timeframe.

Should technology play a role?

The management of a company claim process, with all the inherent state-specific variations and possible best-practice solutions, can certainly benefit from technology tools and infrastructure. Additionally, technology can also play a role in monitoring and delivering new and revised state requirements to the right functional area of responsibility and permit reporting for company compliance oversight.

Are there emerging compliance factors with which claim departments will be expected to comply?

There certainly has been regulatory activity this year regarding the claim function. One example is Oregon's Senate Bill 2190. Effective Jan. 1, 2010, motor vehicle insurers will be required to adhere to new total-loss claim-settlement processes. Insurers will be required to provide owners with specific information on a total-loss form to be developed by the Oregon Insurance Division through a rule-making process. Additionally, during the course of valuation disputes, insurers will now be required to pay claimants the amount of the vehicle's originally determined claim valuation that represents the undisputed portion.

Kathy Donovan is the author of Compliance Corner, a blog that helps insurance professionals stay informed of regulatory issues.