Market Conduct Annual Statement

1. Market Conduct Annual Statement

2. Market Conduct Process State-based regulation • Enforcement Actions • Surveys • Complaints • Market Conduct Exams • Prior exam findings • MCAS

3. Market Regulation Not just “market conduct” exams anymore MCAS Collaboration with other states Financial exams

4. MCAS “Through the Years” Started in 2002 Process to collect market conduct related data Established criteria/data requests…looking for uniformity in data reporting Provides data that is not otherwise collected

5. MCAS and MAP • Market Analysis Procedures Working Group (MAP) • MAP reviews and coordinates state market analysis programs • Develops procedures • On “tap” for 2011 consideration: • MCAS blank to be used for the collection of data for additional lines of business • Best practices guide for state insurance regulators to analyze MCAS data • Data elements • Making recommendations for the enhancements/improvements to the Market Regulation Handbook

6. MAP/MARS • MAP reports to the Market Information Systems (D) Task Force • Market Analysis Review System (MARS) • Documents that reviews were performed on select insurance companies • Document a market analyst’s input, conclusions, and recommended next steps

7. MCAS Permits… • State regulators to compare/contrast insurer-specific results with others in the insurance industry: • Replacements • Non-forfeitures • Complaints • Life Insurance face values • Cancellations/Nonrenewals • Claims timeframes • Claims taking longer than 60 days to finalize

8. MCAS Permits… • A review of company’s direct premium reported on a national and state basis • Determining if premium has increased or decreased by 33% (or other %) in any single year during last 5 years • Evaluating how the insurer is handling growth • Evaluating how claims staff is keeping pace with growth demands • Answering the question: Are premiums down?

9. MCAS Permits… • Statewide averages determination • View of company data to determine if there are company ratios that exceed the statewide averages • Identification of company outliers • Analysis and comparison of outliers with companies through baseline analysis • Assistance in identifying which insurers may need to have a Level 1 review conducted

10. Level 1 Analysis • Company Action • Regulatory Action

11. Company Action • Special Activities Database (SAD) • Market Activities • Legal Actions

12. Regulatory Action • Substantive regulatory actions • Reasons for actions • Any patterns? • What were the magnitude of the penalties?

13. Alabama 25 Alaska 15 Arizona 20 Arkansas 15 California 40 Colorado 25 Connecticut 40 Delaware 30 Dist. of Col. 15 Florida 40 Georgia 35 Hawaii 15 Idaho 15 Illinois 40 Indiana 40 Iowa 40 Kansas 20 Kentucky 15 Louisiana 25 Maine 15 Maryland 25 Massachusetts 40 Michigan 40 Minnesota 30 NAIC Recommended Level 1 Analysis Reviews: 2011

14. Mississippi 15 Missouri 40 Montana 15 Nevada 15 New Hampshire 20 New Jersey 40 New Mexico 15 New York 40 North Carolina 40 North Dakota 15 Ohio 40 Oklahoma 25 Oregon 20 Pennsylvania 40 Rhode Island 15 South Carolina 25 South Dakota 15 Tennessee 20 Texas 40 Utah 15 Vermont 15 Virginia 25 Washington 35 West Virginia 15 Wisconsin 40 Wyoming 15 NAIC Recommended Level 1 Analysis Reviews: 2011

15. How is MCAS Used by Regulators? • Does a state participate? • Is the regulator concern a covered MCAS line of business currently under review? • Was this concern/issue identified as outlier? • What data element(s)/subline(s) result in company being an “outlier”? (PPA, HO, ILCVP, ILNCVP, IFA, IVA) • Statewide average comparisons

16. How is MCAS Used by Insurers? • Gather data • Evaluate data • Report Cards

17. Why MCAS? • Permits centralized data storage • States have authority to share information with the NAIC • States have authority to require insurers submit information to the NAIC • Offers opportunities for trending and analytics

18. Life & Annuities

19. MCASReporting Period: Life Lines of Business 1/11 through 12/11 • Individual Life Cash Value Products • Individual Life Non-Cash Value Products • Individual Fixed Annuities • Individual Variable Annuities

20. Individual Life Cash Value Products - 2011 MCAS Data Elements • Newly issued replacement policies issued during the year • Internal replacements • External replacements • Policies replaced where age of insured at replacement was <65 • Policies replaced where age of insured at replacement was 65 and over • Policies surrendered under 2 years from issuance • Policies surrendered between 2 and 5 years of issuance

21. Individual Life Cash Value Products - 2011 MCAS Data Elements • Policies surrendered between 6 and 10 years of issuance • Policies surrendered during the year • Policies issued during the year where age of insured at issue was <65 • Policies issued during the year where age of insured at issue was age 65 and over • New Policies issued by insurer during the year • Policies in force at the end of the year

22. Individual Life Cash Value Products - 2011 MCAS Data Elements • Direct premium during the year • Face amount ($) of insurance issued during the year • Face amount ($) of insurance in force at the end of the year • Direct complaints received from consumers • Number of death claims closed with payment during the year within 60 days

23. Individual Life Cash Value Products - 2011 MCAS Data Elements • Death claims closed with payment during the year, beyond 60 days from the date of due proof of loss • Death claims denied, resisted or compromised during the year • Death claims received during the year

24. Individual Life Non-Cash Value Products - 2011 MCAS Data Elements • New replacement policies issued during the year • Internal replacements issued during the year • External replacements issued during the year • New policies issued during the year • Policies in force at the end of the year • Direct premium during the year • Face amount ($) of insurance issued during the year • Face amount ($) of insurance in force at end of year

25. Individual Life Non-Cash Value Products - 2011 MCAS Data Elements • Direct complaints received from consumers • Number of death claims closed with payment during the year within 60 Days • Number of death claims closed with payment during the year past 60 days • Number of death claims denied, resisted or compromised during the year • Total death claims received during the year

26. Individual Fixed Annuities – 2011 MCAS Data Elements • New replacement contracts issued during the year • Internal replacement contracts • External replacement contracts • Contracts replaced where annuitant’s age at replacement was < 65 • Contracts replaced where annuitant’s age at replacement was 65-80 • Contracts replaced where annuitant’s age at replacement was > 80 • New immediate contracts issued • New deferred contracts issued during the year where annuitant’s age was < 65 • New Deferred Contracts issued during the year where annuitant’s age was 65 to 80

27. Individual Variable Annuities - 2011 MCAS Data Elements • New deferred contracts issued during the year (annuitant age >80) • New deferred contracts issued during the year • Contracts surrendered < 2 years from issuance • Contracts surrendered between 2 and 5 years of issuance • Contracts surrendered between 6 and 10 years of issuance • Contracts surrendered during the year • Contracts in force at the end of the year • Amount ($) of annuity considerations during the year • Direct complaints received from consumers

28. Recent Life Insurer Fines • New York: Replacement and application processes -$1,900,000 – February 2010 • New York: Life insurance and annuity client complaint handling - $2,000,000 – December 2010

29. Private Passenger Auto

30. PPA Coverages in MCAS • Collision • Comprehensive/Other Than Collision • Bodily Injury • Property Damage • Uninsured Motorists and Underinsured Motorists (UMBI) • Uninsured Motorists and Underinsured Motorists (UMPD) • Med Pay • Combined Single Limits • Personal Injury Protection

31. PPA: Claims “at a high level” - 2011 MCAS Data Elements • What was open at the beginning of the reporting year? • How many did you open during the reporting year ? • How many did you close through payment? • How many did you close without paying the claim? • How many did you have open at the end of the year?

32. PPA: It’s all about Timely Claim Handling - 2011 MCAS Data Elements • Paying the claims: How many claims were closed with payment • 0-30 days • 31-60 days • 61-90 days • 91-180 days • 181-365 days • > 365 days

33. It’s all about Timely Claim Handling - 2011 MCAS Data Elements • Not paying the claims: How many claims were closed without payment • 0-30 days • 31-60 days • 61-90 days • 91-180 days • 181-365 days • > 365 days

34. PPA: “Inventory of Suits”- 2011 MCAS Data Elements What is tied up? • Open at beginning of the period • Opened during the period • Closed during the period • Open at end of period

35. PPA: Policy Data - 2011 MCAS Data Elements • Number of autos with policies in-force at year’s end • Number of policies in-force at year’s end • Number of new business policies written during year • Dollar amount of direct premium written during year

36. PPA: CNR Data - - 2011 MCAS Data Elements • Company-Initiated non-renewals during the period • Cancellations for non-pay, NSF or insured’s request • Company-Initiated cancellations in first 59 days • Company-Initiated cancellations 60 to 90 days out • Company-Initiated cancellations > 90 days out

37. Timely Claim Handling In 29 instances, the Company failed to supply the claimant with a copy of the estimate upon which the settlement was based. The Company failed to document that a copy of the estimate is provided to the insured. In 17 instances, the Company failed to document the basis of betterment, depreciation, or salvage. The basis for any adjustment shall be fully explained to the claimant in writing. The Company failed to tender the total loss offer in writing. In six instances, the Company failed to provide written notice of any statute of limitation or other time period requirement not less than 60 days prior to the expiration date. CA 10/10

38. Total Loss MCE Criticisms Examiners identified 21 first/third party total loss settlements, in which the Company failed to pay appropriate tax, license registration and/or air quality fees. (§ 20-461, 20-462, A.A.C. R20-6-801) AZ 11/10 Company did not always include sales tax and fees in the actual cash value calculations on owner retained salvage claims…Companies violated WAC 284-30-3908 by deducting sales tax and fees in the actual cash value calculations in 1,788 owner retained salvage claims WA 3/11

39. Claims…it’s not just “exams” Maryland’s MIA: • Conducted year-long industry survey of 119 insurers • investigated mishandling of vehicle insurance claims following changes to the taxes and fees associated with total loss • 67 out of 119 companies were in violation • Almost $250,000 in collective fines • Almost $500,000 in restitution

40. Homeowners

41. Homeowners Claims -2011 MCAS Data Elements Open at beginning of the period Opened during the period Closed during the period, with payment Closed during the period, without payment

42. Homeowners: “Settling the Claims” - 2011 MCAS Data Elements • Paying the claims • 0-30 days • 31-60 days • 61-90 days • 91-180 days • 181-365 days • > 365 days

43. Homeowners: “Settling the Claims” - 2011 MCAS Data Elements • Median days to final payment • Median days to date of report

44. Homeowners: “Inventory of Suits”- 2011 MCAS Data Elements • Open at beginning of the year • Closed during the year • Open at year’s end

45. Homeowners: Policy & CNR Data - 2011 MCAS Data Elements • Dwellings that have policies in-force at the end of the year • Policies in-force at the end of the year • New business policies written during the year • Dollar amount of direct premium written during the year • Non-renewals during the year • Cancellations that occur 60 days or more after effective date, (excluding those for either non-pay or at the insured’s request) • Cancellations that occur in the first 59 days after effective date, (excluding those for either non-pay or at insured’s request)

46. Recent Property & Casualty Fines Connecticut $246,000 – August 2010 $177,500 – March 2010 $141,500 – February 2010 $397,000 – December 2010 $101,000 – January 2011 Missouri - $200,000 – February 2010 New York - $475,000 – January 2010 Texas - $221,000 – September 2010 Washington - $534,000 – November 2010

47. MCAS Process

48. Overview of Process Steps • Gather • Evaluate • Enter • Upload

49. 2011 Changes • Historical data uploaded • On-line portal (April 15th was no longer just “Tax Day”) • Worksheets • E-Attestations

50. MCAS AICP E-Day Homework • Planning • IT coordination & understanding • Check the numbers • Forewarned is forearmed • Report card time