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Solutions Helping Insurers Deal With Auditor’s Reach

Bill Kenealy July 1, 2008

Though some may regard it as stodgy, the insurance industry isn’t static. One need only look at the steady flow of rules, regulations, statutes and bulletins emanating from both federal and state regulators to confirm this.

While audits are anything but new, laws such as the Sarbanes-Oxley Act, coupled with a broader move toward insurers viewing risk across the enterprise, has raised their profiles among insurers. “SOX has resurrected the importance of audits,” says Phil Dayalu, director of IT for Indianapolis-based Kaplan Compliance Solutions.

Market conduct exams review how insurance companies and their representatives treat consumers in the marketplace and whether companies are following state insurance laws and regulations in underwriting, policyholder service, claims, marketing and sales, producer licensing, and complaint handling. States including Kansas, Pennsylvania, Wisconsin and California post the findings of their market conduct examinations on Web sites of their respective insurance departments.

TRANGRESSIONS

Those in the insurance industry tasked with managing this complex process are all too well aware of the importance of the examinations, and of the attendant fines and disruption of business that can accompany transgressions.

Indianapolis-based Conseco Inc. certainly doesn’t need much reminding. In May, the life, health and annuities products provider reached a settlement with state insurance regulators and agreed to pay a $2.3 million fine to settle charges stemming from market conduct audits. The settlement was initiated by a multi- state market conduct examination led by Pennsylvania, Illinois, Indiana, Texas and Florida and related to long-term care claims practices and procedures, complaint handling, and sales and marketing practices at two of its insurance subsidiaries: Conseco Senior Health Insurance (CSHI) Co. and Bankers Life and Casualty Co.

As part of the deal, Conseco agreed to implement a state-monitored process improvement plan designed to achieve performance standards in claims and complaint processing and to invest $26 million on systems enhancements. “We’ve been diligently working toward best-in-class service through the process improvement and enhancement program we implemented in 2007, and are already seeing meaningful results in claims and complaint handling,” says Conseco CEO Jim Prieur.

HAYSTACKS

The need for capital improvements in order to meet market conduct requirements isn’t surprising considering that carriers have limited resources available for non-revenue producing functions. However, it is far from certain that a market conduct issue can be ameliorated with a quick technological fix. Although technology can greatly aid in these matters, it can’t do so alone and, accordingly, human knowledge—both historical and operational — is a necessity, says Kathy Donovan, manager of government relations for Minneapolis-based Wolters Kluwer Financial Services insurance compliance solutions group.

“Pure technology can serve as a vehicle for notification, but you need human analysis — you can’t have one without the other and have a successful system,” she says. “Someone has to ask: Is this something we need to push out to the field office, or what does the state expect?”

Another primary challenge for insurers is making sure that they are getting all the information about regulatory changes, Donovan says. Indeed, many statutes are constantly being revised in many states. Carriers operating on a regional or national basis need to keep abreast of the changes in every state in which they do business.

While knowing about changes is important, it may only be half the battle. Not every change is germane to every carrier, or every line of business within a carrier. Therefore, carriers need to sift through the reams of statutes and regulations and then prioritize the ones that affect their operations.

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