Insurance Market Conduct examinations are a regular part of the insurance business. Besides the stress of the exam itself, being cited for violations can result in costly fines. Regardless, many citations can be avoided.

Every year, insurance compliance solutions provider Walters Kluwer releases its annual study of top ten reasons insurance companies are found to be out of compliance in state market conduct examinations. In the most recent 2008 study, five of the ten issues of non-compliance were claims related.

If you look at the Walters Kluwer studies performed in 2007 and 2006, you will see similar results around claims. As in the past, documentation and customer service issues are the primary culprit for claims non-compliance.

5 Claims issues found as non-compliant

1. Failure to acknowledge, pay or deny claims within specified time frames
2. Failure to pay claims properly (sales, tax, loss of use)
3. Improper documentation of claim files
4. Failure to communicate a delay in the settlement of claims in writing
5. Use of unlicensed claims adjusters or appraisers

All of these findings could have been avoided with enforcement of best practices and an internal review process. With some basic actions, a company can  minimize or eliminate their risk of being out of compliance.

3 Simple tools to avoid costly fines

There are very simple tools that should be employed to help prevent negative claims findings on market conduct reviews. Here are some basic preventative steps to eliminate or mitigate against being cited in a review:

1. Manage to best practices – Establish and manage claims departments to meet industry best practice standards. Set guidelines and educate staff as to the importance of proper file documentation and notification requirements.
2. Self audit –  Regularly reinforce good handling practices and customer service expectations through internal audits. A self-audit program should be designed to look for deficiencies and establish plans of action to correct any issues promptly. These compliance audits of staff should be done at least annually.
3. Vendor management program – Set up a standard vetting process to make sure vendors are appropriately licensed and will comply with company guidelines. Where appropriate, audit these vendors as well to ensure information originally supplied during the application process remains current.

So many of the 5 issues cited above are avoidable. Setting standards and monitoring for compliance will minimize your risks in a market conduct examination. As an added benefit your files will be in better shape and your customers will be happier for it.