If your company is a property and casualty insurer or MGA that operates in multiple states, a key challenge for your claims organization is keeping in step with state variations in the laws and regulations affecting claims handling. A 2019 study found that claims compliance errors were both the number one and number two most common reasons for regulatory enforcement actions taken against U.S. property and casualty insurers. Further, according to the same study, five out of the top ten reasons for insurance department actions against companies involved errors in claims handling.
The laws, regulations, and court precedents that apply to claims handling can vary widely from state to state in a number of key areas. A “one-size fits all” set of guidelines may have worked well when your company operated in just one, or a handful of states, but that same approach can quickly lead to problems as the company expands into new jurisdictions. Simply put, the more states in which your company handles claims, the more state law variations your company will encounter and need to work into its claims processes. And the failure to conform to state law variations is, as they say, not an option. In addition to the risk of regulatory fines and penalties for not adhering to state claims handling laws, your company risks court challenges leading to adverse claim development, and, in some cases, bad faith liability. Further, the consistent and systematic failure to adhere to a state’s particular claims handling laws and regulations could also, depending upon the issue, expose the company to consumer class action litigation in that state.
So, what are some areas to look out for? Here is a list of some of the areas where claims handling laws and regulations vary from state to state:
- Time frames for acknowledging, investigating, and paying or denying claims;
- Reservations of rights (ROR) requirements (both timing and ROR letter content requirements);
- Notice and disclosure requirements for denying a claim;
- Notice and disclosure requirements when paying a claim;
- Notice requirements when paying a claim to an attorney or other representative;
- Requirements for paying auto medical payment or PIP claims under an assignment of benefits;
- Uninsured/underinsured motorist claims;
- Sales and use tax payment requirements for automobile total losses;
- Replacement cost claims (homeowners coverage);
- Ensuing mold claims (homeowners coverage); and
- General claims file documentation and record retention requirements.
As a first step, it is important to determine if you claims handling procedures are up-to-date with current state requirements. Even if a review was conducted when your company entered a state, laws change frequently, and procedures can quickly become out dated. Periodic risk assessments and audits are also critical to ensure that procedures designed to ensure compliance are routinely followed. Lastly, targeted compliance training can highlight and enhance understanding of key state law variations and compliance issues.
If you are unsure about where your company stands with respect to compliance with multi-state requirements on key claims issues, The Lawson Firm, LLC offers a number of services that can help. These include:
- Updating your company’s claims compliance research, matrices, and procedures;
- Conducting targeted risk assessments for key claims issues;
- Creating customized audit plans to enable the company to conduct its own claims compliance audits;
- Customized compliance training to help ensure adherence to compliance procedures; and
- Representation for, and assistance with, market conduct exams.
Please contact Scott Lawson firstname.lastname@example.org to learn more.