National Underwriter - April 18 2011

Regulatory Compliance — A “Risky” Proposition

Kathy Donovan, Senior Compliance
Counsel, Insurance
Wolters Kluwer Financial Services

Legislative and regulatory requirements—that constant in the daily lives of property and casualty insurance professionals—presents daunting compliance risk challenges. For not only do organizations need to ensure that existing state and federal mandates are embedded in their internal processes, they also need to manage the identification, monitoring, understanding and implementation of multiple new and revised requirements within the established time frames.

A quick review of recent initia-
tives, either proposed or effec-
tive within the past two years,
reveals some interesting patterns
of continued focus. From requir-
ing insurers to consider an indi-
vidual’s “extraordinary life events”
when using credit information
in underwriting or rating and
adding more clarity into the
motor vehicle total loss process
to taking steps to combat fraud,
both recent and current legislative
sessions have sought to establish
enhanced consumer protection
and anti-fraud measures.
A closer look at Connecticut’s
new credit information require-
ment indicates that, effective July
1, 2011, insurers must disclose to
each applicant that their credit
history may be used in the under-
writing or rating of their policy,
and that the applicant has the
right to request, in writing,
that the insurer consider an
extraordinary life circumstance
that occurred within the 3 years
prior to the date of the applica-
tion. Insurers must also provide
at policy issuance a written
disclosure that includes:
•;Insurer;name,;address,
telephone number and
toll-free telephone number
•;Details;about;how;credit
information is used to
underwrite or rate
•;Summary;of;consumer
protections regarding the
use of credit
Through first quarter 2011,
approximately half the states had
introduced legislation proposing
additional restrictions on the use
of credit information by insurers.
All proposals pose the possibilities
of future regulatory compliance
issues for insurers should they
become enacted.

Last year Louisiana established a requirement for insurers to file an anti-fraud plan prior to the effective date of January 1, 2011. These plans needed to include very specific details about the insurer’s detection, investigation, and prevention of all forms of insurance fraud, employee education and fraud;reporting.;Successful compliance dictated adequacy in insurers’ plans, as well as timely filing with the department of insurance. A similar requirement is currently proposed in Michigan’s;SB;211;that;seeks;to have each insurer develop, and

file with the commissioner, a plan to detect and prevent insurance fraud.

Every new or revised regulatory requirement creates a challenge and an opportunity for an insurer’s compliance efforts to succeed or fail, hence the term “risky proposition.” One of the particularly difficult aspects is determining whether you have identified and addressed these requirements. And while these requirements may be effectively and timely identified, the dynamics of most insurance companies often dictate many moving parts that affect the compliance outcome—that successful and sustainable result. From meeting regulatory time-frames to incorporating new and revised forms into claims and underwriting processes, compliance risk constantly demands insurers’ attention and focus.