Anybody in the life and health industry can attest to the tectonic effects that regulatory intervention can have on business, and the best news from a state insurance department usually is no news at all. But every state DOI is going to keep a sharp eye out for any misconduct among the insurers in its jurisdiction, and on a long enough timeline, every carrier ends up under the microscope.
Wolters Kluwer Financial Services has released its 10th annual list of the top market conduct criticisms aimed at life and health insurance companies by state regulators. Wolters Kluwer compiled this information from its annual review and analysis of results from state insurance exams from the previous year. The company’s regulatory experts note that key compliance issues revolve around some usual suspects: claims-handling, underwriting and product requirements.
According to Kathy Donovan, senior compliance counsel, Insurance, at Wolters Kluwer Financial Services, internal audits are a key way to monitor internal regulatory compliance. It is not uncommon for a lot of regulatory problems to occur simply because a company thinks it is upholding proper compliance practices when in fact the rules have changed, or, the compliance efforts simply are not as efficient as the company thinks they are.
We spoke with Donovan about each of the top 10 market compliance problems for life & health insurers, where the problems typically come from, and what can be done about them. Let’s start with…
10. Failure to properly acknowledge, pay, investigate, or deny claims within specified time frames.
This is driven mostly by the health insurance segment for the industry. Most states, Donovan notes, have “prompt pay” laws for health insurers. Where insurers run afoul of these is when there is a delay in the payment processing system, a complicated procedure with many steps where something can go sideways. Another factor is simply volume. Generally speaking, there is an order of magnitude more health insurance claims than life insurance claims, which means that in health insurance there are simply far more opportunities for things to go wrong. It is not that different from some of the personal property & casualty lines, such as personal auto, where any given carrier in that market faces a large number of claims to process on any given day.
9. Failure to adhere to advertising requirements.
Just as health insurance drives issues regarding the timeliness of paying claims, life insurance and annuity business drive issues regarding advertising requirements. Donovan says that the classic example of an advertising-driven regulatory problem involves fliers distributed for financial preservation workshops. Copy that promises to deliver a return at a multiple higher than what the client is currently receiving, with no risk to their principal, is the kind of language that makes regulators take notice and ask, “They said that?”
Different states will provide different levels of detail in their complaints over questionable advertising practices, Donovan says. Virginia, in particular, is known for providing deep levels of detail on practices it finds dodgy, parsing particular fine points in the advertising. Other states, however, may only note that advertising in question “appears to be misleading,” and offer no further comment. When the regulators are vague about where you might have colored outside of the lines, that’s not a good sign.
8. Failure to use licensed and/or appointed producers and to provide proper notification of producer appointments or terminations.
This pops up when state regulators begin their examination of an insurer and they find that their producers are not fully documented. Where insurers tend to go astray here is when they have producers who accepted business on behalf of the insurer but the producer was not yet licensed in that state. Or, the producer was licensed, but did not yet have a valid appointment from the insurer at the time the producer took in the business.
Tying in to this, Donovan says, is the requirement for insurers to notify respective departments of insurance of any terminations, appointments, etc. within 30 days. This is a lot of bookkeeping, and it falls to the insurer to make sure all timeframes are met. This means insurers have to have the proper infrastructure in place to handle this kind of paperwork, or else something will be missed.
This is a frequently criticized area, Donovan notes, and it really crosses all lines of insurance business. It is a topic of special focus in Connecticut, where Donovan says this issue frequently arises. “You always see this there,” she says. It comes down to there being a lot of moving parts within narrow time frames, and it is a continuing compliance challenge for insurance companies. “This is a known issue,” Donovan says. “It is a perennial struggle.”
7. Failure to provide required claims and underwriting disclosures including those concerning coverage issues, policy replacements and fraud warnings.
In claims and underwriting, there are so many moving parts (especially with claims) and states require fraud warnings on all of them. Every claims or underwriting document in the pipeline needs the proper fraud warning as mandated by whatever particular state that doc is going to be used in. Over the past few years, insurers have had to make sure that all of these forms, with their proper fraud warnings, are also properly marked online.
Where this draws special scrutiny is when an insurer issues a denial – either in full or in part – based on policy provisions. Certain states will mandate that the insurer disclose the details of the denial as a form of consumer protection. Consumer protection, Donovan says, factors into a lot of the attention paid to proper claims disclosures.
On underwriting, anything to do with policy replacements and policy illustrations will require the insurer to provide compliant wording so that clients can be expected to understand what it is that they are buying, and how advertising illustrations might tie into the underwriting process. It is critical that the customer understands what they are buying. If they don’t, expect a visit from the DOI.
6. Improper documentation of underwriting and claim files.
This is a case of insurers simply not doing their homework, Donovan says. When examiners come in and conduct an examination, if they don’t find compliance resolution letters and adverse underwriting decision notices in their policyholders’ individual files, then it raises a red flag. As far as the examiner is concerned, there is a question of whether those documents were ever actually provided. “Document, document, document,” Donovan says. “Can you prove everything you were supposed to do?”
5. Failure to adhere to required claims appeal processes including timeframes and disclosures.
The origins of this problem are a little unclear, Donovan says. It comes down to claims appeal processes not being followed, usually in conjunction with there being a lack of detailed policies and procedures within the insurer itself. Donovan notes that a significant number of complaints in this area involve companies that for some reason do not initiate the grievance process immediately upon receiving a filed grievance.
This issue is most commonly associated with health insurance, and in particular the very specific and highly regulated health insurance claims process. States really define this process closely so that when policyholders have exhausted their appeals with an insurer over a claim, they can exercise their right to request an independent review with the department of insurance. It is all tied into consumer protection, and for the insurer, the trick is effectively implementing the state’s mandated framework for handling claims appeals into the organization’s own framework. Sometimes the two just are not that compatible, and with a lot of moving parts, there is a risk of something going wrong. The upside here, Donovan says, is that the sheer number of grievances filed are a relatively small subset of the total claims volume. Most claims are handled swiftly and without incident.
4. Failure to pay claims properly in accordance with policy provisions.
This has a lot to do with certain state-mandated health insurance benefits with exams that predate the Patient Protection and Affordable Care Act. Usually the state receives a complaint that something is not being covered by a health insurer, such as a policy holder on the autism spectrum, or certain kinds of preventative care. What tends to happen is that the policy provision has those coverages, but the claims are denied anyway due to some disconnect within the insurer itself over what the policy does and does not cover. This kind of problem can also arise when there is confusion internally at the insurer over whether or not a cost is within network. This is a series of compliance challenges that can go unmet, Donovan says, and they evidence themselves in unmet payments.
3. Failure to use compliant policy forms and/or maintain compliant plans.
This is a health insurance issue, for the most part, in which policy forms have to be up to date to reflect any all state-mandated benefits. Massachusetts and Missouri in particular require a laundry list of coverages, and insurers that have not updated their forms for use in those states could find themselves walking into a regulatory pickle.
What can carriers do? Donovan says that insurers have to recognize the importance of internal compliance audits. Poll internal paperwork to ensure it is abiding by all applicable rules. Check to see if there have been any regulatory updates done within the last year or two in the jurisdictions in which business is being placed, but also double check to make sure that forms being uses are in compliance. This is the area in which many insurers might think they are in compliance, but are, in fact, not, Donovan says. It requires an assembly lines of requirements for proper filing, testing and issuance to get it right.
2. Noncompliant claim denial notices.
This typically involves non-mandated forms, and insurers that fail to use the proper wording when issuing a claim denial. Most commonly, it involves failure to note that the policyholder has the right to appeal the denial to their department of insurance. This one oversight can generate plenty of headache with state authorities, as it will run counter to consumer protection laws.
If a person is receiving a claims denial, Donovan says, they need to understand why they are being denied so they can take advantage of the grievance and appeals process. If that information is not on the claim denial notice, then the entire process goes back to Square One as far as the state is concerned. The insurer must get it right the first time when issuing a denial, Donovan says. The burden is on the insurer.
1. Failure to issue correct explanation of benefits.
EOB forms are a way of life, Donovan explains, especially in health insurance. This is the step in the claims process where the insurer tells the policyholder what has been paid, what the provider has accepted, whether the services are in network, and what the policyholder might owe. Disclosures of this kind vary state by state, and the states definitely look for what they expect to be in that language, such as a prominent display of notice of appeal rights, or the right time limit for subscribers to file an appeal.