Hot Topics and MCE Trends - 2011

1. Hot Topics and MCE Trends - 2011

2. Today’s Hot Topics & Enforcement Trends A look back at 2010 • Its “hot topics” • Its enforcement issues What does 2011 present to us?

3. Background • Consumer Protection focus - states • Financial Services Reform • Health Care Reform

4. Property & Casualty: 2010-2011

5. States’ Focus - 2010 • Disclosures • Auto Claims • Anti-Fraud • Credit Scoring • Certificates of Insurance

6. Claims Release Disclosure New Hampshire • WARNING "IF YOU SIGN THIS RELEASE YOU MAY FORFEIT YOUR RIGHT TO UNINSURED MOTORIST INSURANCE BENEFITS FROM YOUR OWN AUTOMOBILE INSURANCE POLICY. CONSULT WITH YOUR INSURANCE AGENT, YOUR AUTOMOBILE INSURANCE COMPANY, OR YOUR ATTORNEY BEFORE SIGNING." • I certify that I have read the above warning and fully understand it. Effective January 1, 2010

7. Policy Limits Disclosure New Hampshire • Disclosure to the claimant, or his or her counsel, the policy limits of the policy or policies of all liability insurance applicable to the defendant as to such claim. Effective January 1, 2010

8. WC Medical Records Disclosure New Hampshire • Request for medical records must contain this notice in: • bold print • font size at least 2 points larger than that used in the request: • "This request is strictly limited to medical information relevant to the occupational injury or illness that underlies the patient's workers' compensation claim, including any past history of complaints of, or treatment of, a condition similar to that presented in the claim." Effective July 1, 2010

9. Workers’ Comp Disclosures Oregon • Following the death of a worker all future notices are required to be addressed to the workers’ estate or qualified beneficiary • New notification requirement for workers with multiple jobs at the time of injury • Notifications of acceptance and denial of claims must advise the worker of the two-year time limitation to request reimbursement Effective January 1, 2010

10. UM/UIM Disclosure Utah • UM/UIM insurance companies must provide a written response to a covered person’s demand for uninsured or underinsured motorist compensation within 60 days • Additional procedures for litigating or arbitrating a demand for UM/UIM Effective March 30, 2010

11. Total Losses Oregon • Provide any valuation or appraisal reports relied upon by the insurer to determine value of total loss • DOI developed disclosure form that includes information about the total loss, vehicle valuation, and the duties of the insurer, how and when the insured may contact the Division Effective January 1, 2010

12. Total Losses Louisiana • Policy provides for the adjustment and settlement of vehicle total losses for ACV or replacement with like kind and quality • The insurance company chooses a cash settlement based on the actual cost to purchase a comparable motor vehicle • Costs must be derived by using either a fair market value survey conducted using qualified dealers in the local market area, or, if there are no dealers in the local market area, the nearest reasonable market can be used Effective August 15, 2010

13. Total Losses Connecticut • Retail value of a total loss vehicle may be determined from any publicly available automobile industry source approved by the DOI • Insurers must provide written notice including the insurance company's calculation of the vehicle's total loss, a valuation report and a notice to dispute the claims settlement Effective January 1, 2011

14. Fraud Initiatives - 2010 • Arizona: Makes it a crime for an auto glass repair shop to bill an insurer for misrepresentations on a repair of an automobile • California: DOI meetings with insurers to discuss insurance fraud; immunity for meeting discussions of specific suspected, anticipated, or completed acts of insurance fraud – ALL LINES • Louisiana: Requirement to submit fraud plans to DOI – ALL LINES

15. Fraud Initiatives - 2010 (All Lines) Louisiana (January 1, 2011) Anti-fraud plan • Must be filed with the commissioner • Must outline specific procedures, actions, and safeguards • Must include how the authorized insurer will: • Detect, investigate, and prevent all forms of insurance fraud , • Educate appropriate employees on fraud detection and the insurer's or health maintenance organization's anti-fraud plan. • Provide for fraud investigations • Report a suspected fraudulent insurance act to the DOI and others • Pursue restitution for financial loss caused by insurance fraud

16. Fraud Initiatives - 2010 (All Lines) Rhode Island • All insurance companies must have anti-fraud initiatives in place for detection, reporting, preventing fraud • May include: • Fraud investigators, who may be insurer employees or independent contractors; or • An antifraud plan Effective January 1, 2011

17. Credit Scoring – ELC Activity • Connecticut • Indiana • Iowa • Kansas • New Hampshire

18. Credit Scoring - ELC Connecticut • Insurers must disclose to each applicant that the credit history maybe used in the underwriting or rating of applicant’s policy, and • That the applicant has the right to request, in writing, that the insurer consider an extraordinary life circumstance which occurred within 3 years before the date of the application • Insurer must 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 Effective July 1, 2011

19. Credit Scoring - ELC Iowa/Kansas/New Hampshire • Written request from a consumer • Insurer shall provide reasonable exceptions to the insurer's rates, rating classifications, company or tier placement, or underwriting rules or guidelines for a consumer who has experienced and whose credit information has been directly influenced by extraordinary life circumstances Effective July 1, 2010

20. Credit Scoring - 2010 Connecticut: • Adverse action cannot be based solely on information contained in an insured's or applicant's: • credit history • credit rating, or • lack of credit history Effective January 1, 2011

21. Credit Scoring - 2010 New Hampshire: • Insurers prohibited from cancelling, nonrenewing, or declining automobile or homeowners policies solely on the basis of credit information obtained from a credit rating, a credit history, or a credit scoring model, without consideration of any other applicable and permitted underwriting factors independent of credit information Effective January 1, 2011

22. Certificates of Insurance - 2010 • Arkansas, Connecticut, Iowa, Kansas, Missouri, Montana, Nebraska, North Dakota, Texas and Utah issued bulletins in 2010 • Essentially serving as reminders about not issuing or using a Certificate of Insurance form that contains language that conflicts with or purports to alter any policy coverage, exclusion, provision or condition

23. Certificates of Insurance - 2010 Texas – Evidence of Commercial Property Insurance • Forms are sometimes issued as “a matter of information only” or similar language without the contemporaneous issuance of a binding document or policy of insurance  • Insurers or agents should not use any form or make attestations that do not accurately reflect what actually exists for the benefit of the policyholder or beneficiary, whether the form or attestation references a binder, policy, or action to be taken by the insurer with regard to issuing a binder or policy • Insurers or agents should not issue or sign forms that create rights and obligations outside the insurance contract

24. Certificates of Insurance - 2011 • Arizona’s Bulletin 2011-01: outlines the requirements that certificates must clearly and accurately state the insurance coverage provided and may not obscure or misrepresent the coverage or terms of a policy, the Bulletin also addresses producers’ responsibilities and possible enforcement actions. • Georgia’s Directive 11-EX-2 serves as a reminder that every certificate of insurance, except automobile liability insurance cards, is to include the following statement, or a substantially similar one, printed conspicuously and in no smaller than 10 point font, boldfaced type: “This document is issued as a matter of information only and confers no rights upon the document holder. This document does not amend, extend, or alter the coverage, terms, exclusions, conditions, or other provisions afforded by the policies referenced herein.”

25. Credit Scoring – 2011 • Rhode Island: Regulation 116 establishes guidelines regarding the use of insurance scores in underwriting and rating of homeowners and/or private passenger automobile insurance when a consumer experiences an extraordinary life event. Adopted • Maine HP 294: An insurer that obtains credit information on a consumer shall provide the consumer with notice of the consumer’s credit score and identify the impact of that score on rates and coverage as part of the policy issued to the consumer. Pending • Mississippi’s SB 2674: prohibit an insurer from requiring a particular payment plan for an insured under a private passenger or homeowner's insurance policy based on the insured’s credit history, as well as from using credit information in determining rating or eligibility for coverage. Pending • Montana HB 29 and SB 137:extraordinary life circumstances in personal lines underwriting and the use of credit information in automobile insurance rating and coverage eligibility, respectively. Pending • Ohio’s HB 615: prohibitions on insurers’ use of a credit score, credit history, or credit report in rating or underwriting. Pending

26. Credit Scoring – 2011 • Pennsylvania’s SB 126:prohibit an insurer from denying, canceling or refusing to renew personal insurance due in whole or in part to an insured's credit history. Pending • South Carolina HB 3101 and SB 85: prohibitions on the use of credit reports in rating and underwriting. Pending • Texas’ HB 194: prohibit an insurer from rating a risk based wholly or partly on the credit information, credit report, or credit score. Pending • West Virginia: Pending • HB 2049 seeks to prohibit the use of a person's credit history in insurance transactions • HB 2319 would prohibit the use of credit scores in casualty rate filings • HB 2467 would not only prohibit the use of credit scoring as a rating factor in homeowners or automobile liability policies, but also prohibit declinations of automobile insurance if based, in any part, upon the number of inquiries reflected in a credit report, credit score report or CLUE report or upon any information contained in any of these reports, if the accuracy is disputed by the applicant.

27. Consumer Protection – 2011- Pending • Connecticut’s SB 168: would prohibit property and casualty insurers from assessing late fees on policyholders who make late premium payments. • New Jersey’s AB 3509 and SB 2432 both seek a requirement for insurers to allow payment of homeowners' insurance premiums in monthly installments.

28. Consumer Protection – 2011- Pending Maryland: SB 136 • Homeowner's insurers to provide to an applicant or insured, at the time of application or renewal, a written notice that states whether the insurer's standard homeowner's insurance policy provides coverage for loss that: • is caused by or results from a discharge of water from a plumbing system or plumbing source, including a discharge from a water main break, whether the plumbing system or plumbing source is located on or off the insured premises; and • is not caused by the negligence of the insured.

29. Mississippi - Pending • HB 1199: insurer to provide a clear written disclosure of the actual costs of each item of coverage contained in the renewal policy. The disclosure shall express the costs as the actual rate or cost per $1,000 of coverage of each item of coverage, and as the actual total cost of each item of coverage. • HB 1240: liability insurer shall disclose the limits of any policy to a third-party claimant

30. Life & Annuities: 2010-2011

31. Life & Annuities • Suitability • Retained Asset Accounts • STOLI/STOA • Annuity Disclosures

32. Suitability Model Law Changes • Adopted at NAIC Spring Meeting in Denver • Insurer is responsible for compliance with the model’s requirements, even if insurer contracts with 3rd party • Insurer to review all annuity transactions • Establishes both general and product-specific training requirements for producers • States can, of course, exceed model’s new requirements

33. Suitability Model Scope • Carrier review of all fixed-annuity transactions • Greater supervisory responsibility on insurance companies which need to: • Determine the suitability of agents' annuity recommendations • Document non-recommended transactions • Provide annuity and suitability training • Carriers are requesting more information on their applications and adding more screening to assess suitability

34. Supervision System – Procedures & Training It’s all about compliance: • Reasonable procedures to inform insurance producers • Incorporate Model’s requirements into producer training manuals • Establish standards for insurance producer product specific training (PST) • Maintain reasonable procedures to require producers to comply with the CE and training requirements • Product specific training and training materials which explain all material features of its annuity products to producers

35. 2010 Activity - Suitability Iowa • Provides standards and procedures for recommendations to consumers involving annuity products • Brings the rules into accord with a new NAIC model regulation. • Requires insurers to establish a system to supervise recommendations, as well as to set forth standards and procedures for recommendations to consumers that result in transactions involving annuity products Effective January 1, 2011

36. 2010 Activity - Suitability • Newly adopting jurisdictions, the District of Columbia and New York, essentially follow the Model, with an effective date of Dec. 24, 2010 for the District of Columbia. New York actually promulgated an “Emergency Regulation No. 187” with an initial timeframe of Dec. 29, 2010 to Mar. 26, 2011.

37. 2010 Activity - Suitability Arkansas • Rule 50 Annuity suitability training course approval form effective 9/30/10 Oklahoma • New training requirement: one-time four hour annuity course • Insurers must ensure producers are able to verify completion of the required training • Verification of training lies with insurer • Producers are ultimately responsible to complete the training in accordance

38. Recent Activity - Suitability • Colorado, Rhode Island and Ohio adopted similar changes to their rules and regulations, with recent final adoptions resulting in effective dates of April 1, June 1, and July 1 2011, respectively. • Oregon has also adopted additional regulatory requirements generally consistent with the Model with a primary effective date of July 1, 2011.

39. Retained Asset Accounts Activity - 2010 • Maryland • Delaware • Kentucky • Montana • New Jersey • New Hampshire

40. Retained Asset Accounts Activity - 2011 • Maryland - pending • Iowa • New York – pending • Connecticut • Maine • New Jersey • Ohio • Virginia – pending • Indiana - pending

41. STOLI/Life Settlements - 2010 New Hampshire’s HB 660 • 5 year period (exceptions apply) • Requires insurers to respond to a request for verification of coverage within 30 calendar days • Requires insurers to indicate intention to pursue an investigation regarding contract or fraud • Prohibits the use of life settlement contract forms or disclosure statement forms unless first filed with and approved by the DOI

42. STOLI/Life Settlements - 2010 • Wisconsin’s SB 513 • 5 year waiting period before new life insurance policies can be sold (exceptions apply) • Seen as step in STOLI prevention • OIC to adopt rules including a disclosure requirement

43. STOA - 2010 New Jersey Bulletin 10-14 • Ask applicants and/or producers “targeted” questions • purpose of the purchase • relationship between agent/broker and annuitant • health status of the annuitant • source of funds for premium payments • whether an insurable interest exists between the owner of the annuity and the annuitant • Closely monitor contract deposits • Follow up with calls to annuitants and contract owners; • Redesign variable annuity contracts, e.g., no guaranteed minimum death benefit (GMDB) during the first two years, bolster the contestability clause • Report suspected transactions to Office of Consumer Protection Services

44. Annuity Disclosures - 2010 Idaho • Applicant, at or before the time of application, must be given both the disclosure document and the buyer’s guide in the form prescribed by the director • Disclosure document shall be dated and signed by the prospective annuity owner and producer and the company shallmaintain a signed copy for the life of the contract. If the application for an annuity contract is taken by means other than face-to-face, applicant shall be sent both the • Disclosure document and the buyer’s guide no later than 5 business days after the completedapplication is received by the insurer

45. Health: 2010 - 2011

46. Health • Health rates oversight • Discretionary Clauses • Mandated Benefits • All that is “PPACA”

47. Health Rate Oversight • Connecticut HB 5079: Proposes requirement that the Department hold a public hearing for proposed health insurance rate increases - Pending • Washington HB 1220/SB 5120 -Pending • California OAL approved request for an emergency regulation providing DOI authority to enforce the 80% Medical Loss Ratio (MLR)

48. Discretionary Clauses - 2010 • New York: Proposed prohibiting insurance carriers from inserting discretionary clauses in insurance policies, including LTD policies • Texas: issued bulletin requesting that filings not include these

49. Discretionary Clauses - 2011 Texas • Order and newly adopted rules prohibit discretionary clauses (2010) • Effective February 1, 2011 for disability income insurance • June 1, 2011 for other health, life, and disability policies • Past claims will not be affected

50. Discretionary Clauses District of Columbia • DOI will examine policies which have these clauses to determine if any discretionary clause can be used improperly to deny claims or to restrict any rights an insured has under the policy, including but not limited to: • 1) the right to appeal to the insurer or health care center under contract terms; • 2) the right to an external appeal for certain managed care determinations as specified in District of Columbia Statutes; and • 3) the right to proceed to litigation against the insurer or health care center. • DOI does prohibit Sole Discretionary language and other types of Discretionary Clauses in policy forms, and will request changes to the policy form. All lines of insurance will be monitored for such practice and usage of Discretionary language or clauses. Use of such language could cause delay or rejection in the form filing process. November 24, 2010