Bulletproofing Regulatory Risk & Compliance Management in Claims

Compliance through technology: improve results, staff and policyholder satisfaction

Montreal, QC (July 29, 2016) – Compliance has become a top priority for insurers as technology emerges to make the process easier and more cost effective. Perhaps even more importantly, these solutions have demonstrated the ability to improve operational results while also boosting productivity, staff and policyholder satisfaction.

Brief History of Insurance and Regulation

For thousands of years, insurance was basically unregulated – until 1945. That year, with a focus on protecting consumers from “unscrupulous” insurers, a U.S. Supreme Court ruling put into motion the regulation of insurance, holding that insurance companies were subject to the Sherman Anti-Trust Act. Shortly thereafter, Congress enacted the McCarran Ferguson Act, thereby creating the regulatory framework that has been guiding the insurance industry ever since and providing for individual states to regulate insurance.

Fast Facts about U.S. State Insurance Regulation in 2015(1)

  • Total revenues collected by states from the insurance industry increased 3.43% to $22.6 billion
  • Total projected fiscal year 2017 budgets for all state insurance regulatory agencies total over $1.4 billion
  • State insurance departments received 299,625 official complaints and nearly 1.9 million inquiries
  • Total full-time insurance department staff was 11,304 (down 7.3% from 12, 200 in 2007)
  • Market conduct examiners and analysts numbered 497 and represented 4.4% of total staffing
  • Of 880 Market Conduct Only Examinations completed, 81% or 714 resulted in Administrative Orders (fines)
  • Fines and penalties against insurers totaling $224.0 million represented 16.5% of the total annual budget for all state insurance regulatory agencies

Top 5 Market Conduct Actions Against P&C Insurers

According to research shared by Wolters Kluwer Financial Services(2), claims handling continues to be among the top areas of market conduct criticism:

  • 1. Failure to acknowledge, pay, investigate or deny claims within specified timeframes
  • 2. Using unapproved/unfiled rates and rules or misapplying rating factors
  • 3. Failure to provide required compliant disclosures in claims processing
  • 4. Failure to cancel or non-renew policies in accordance with requirements
  • 5. Failure to process total loss claims properly

Compliance Challenges in Claims Management

“Claims management has consistently been one of the top three compliance challenges for insurers over the last several years, and once again was the top compliance challenge in 2014 across all lines of business,” said Kathy Donovan, senior compliance counsel at Wolters Kluwer Financial Services. “Insurance claims professionals have to manage a variety of internal and external factors when processing claims, including claimant communications and mandatory disclosures, all within established timeframes. The targeted end result is providing proper payment in accordance with policy provisions and state law.” (2)

Compliance Solutions

Software and technology are particularly well suited to enable carriers to avoid fines and penalties – and total loss claim payments – the fifth most frequent source of market conduct fines – is a prime candidate. The U.S. auto insurance industry manages approximately 3.2 million total loss claims annually and is required to get those complex calculations 100% right every time or face fines of up to $10,000 per claim for not doing so.

The vast majority of total loss claims payments are based on clearly stated rules, regulations, taxes and fees but the complexity and frequent changes across literally hundreds of relevant state, municipal and other jurisdictions make the task daunting for even the most seasoned claim professionals, let alone the growing number of newer and less experienced staff. Sophisticated purpose-built software supported by a dedicated, expert research team can not only perform the majority of calculations with 100% accuracy every time but can also maintain an all-important audit trail for use in future market conduct exams and can also provide claim staff with instant access to relevant regulations and references for those few files where interpretation and judgement is required.

By way of example, the issue of whether or not to include sales tax and partial refunds of title and/or registration fees has vexed claims handlers for years. State departments of insurance regularly cite insurers for failing to include or properly calculate tax on automobile total loss claim payments. Worse yet, a large number of insurance departments have either remained silent or issued ambiguous directions about what amounts must be paid and how they should be calculated.

While increasing numbers of large, well established information technology firms and some new early stage entrants offer enterprise solutions broadly defined as Risk and Compliance Management solutions, few are specifically insurance-centric and fewer yet are focused on specific areas of high exposure. In my practice I have become familiar with some highly innovative insurance compliance solutions which are focused on solving a significant specific need in a major area of complexity and exposure.

One such solution that fits this description is a cloud-based total loss workbook which provides automated settlement calculations on a high percentage of passenger vehicles of all types and sizes including motorcycles in all jurisdictions. The software has the capability to be integrated with third-party claims systems and information providers of total loss valuations and other relevant services to provide a truly bulletproof seamless end-to-end solution supplemented by a complete, up to the minute reference library.

I encourage insurance carriers and claim departments to take the time to regularly review all available solutions and in so doing, refocus on their compliance strategies and results. I am available and glad to answer questions and discuss this topic with interested industry participants.

About the Author

Stephen Applebaum is managing partner, Insurance Solutions Group and advises participants in the North American P&C insurance ecosystem, including innovative insurance technology firms such as NuGen IT whose Total Loss Compliance solution is referenced above.


1. The National Association of Insurance Commissioners; “2015 Insurance Department Resources” report covering 50 states, the District of Columbia, American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.

2. Wolters Kluwer Financial Services, November 2015.

Source: InEdge