1. The Latest in California Market Conduct
Frequent Exam Findings and Emerging Issues

2. Market Regulation in California: An Overview of our Structure
Market Conduct Division (Pam O’Connell, Chief)
Field Claims Bureau (Towanda David, Chief)
Field Rating and Underwriting Bureau (Andrea Toth, Chief)
Market Analysis Unit
Pam’s Executive Assistant and Answerer(I wish!)

3. Overview of our Process
A combination of analysis, exams, and other regulatory contact with insurers
Planning exam schedule and determining exam scope, and best type of exam
When would we make that “other regulatory contact”?

4. Exams and Other Contact: What’s on our Radar?
Pam’s Market Reg Radar Screen
Emerging Trends
Common Underlying Causes
Frequent Exam Findings

5. Emerging Trends
Increased use of models for pricing and eligibility decisions
Use of predictive models to determine how much underwriting of risk to do.
Increased outsourcing of various parts of an insurer’s process to third party vendors
Cost of Insurance increases on universal life insurance policies

6. Common Exam Findings: Personal Auto Insurance
Claim-Handling
Total Loss Settlements – Failure to properly handle sales tax, and one time and annual DMV fees; failing to secure a guaranteed bid for salvage; unreasonable process for identifying comparable vehicles [CCR §§2695.8(b)(1), (b)(4), (b)(1)(A); (g)]
Child Restraints – Failing to ask if seat was in car or in use at time of accident. (CIC § (e)]
Rescission of policy - may violate CIC §§ (h) and (h)(5).

7. Personal Auto Insurance
Rating, Underwriting, Marketing, Sales
Multiple PPA Programs – Not making clear the differences in coverage and rate/premium and allowing insured’s choice of program [CIC §§ , (a); CCR §§ , and ]
Discontinuing one or more PPA programs – Without taking proper regulatory steps [ CIC §§ , (a), 672, etc.)
Electronic transmission – improper opt-in process [CIC § 38.6]

8. Residential Property
Depreciation – not taking into account condition of the item being depreciated, applying to items not normally subject to repair or replacement during useful life, incomplete file notes to justify, not explained fully to claimant [CIC §§ 2051 and ; CCR § (f)]
Eligibility Rules – Decisions based on number of losses alone rather than insured’s loss exposure, use of models or scores that cannot be “broken apart”

9. Commercial Lines – Auto and CMP
Stated Value Auto Policies - failure to pay taxes and DMV one-time and annual fees; improperly retaining salvage proceeds [ CCR §§ (b) and (g)]
Rating Documentation – schedule mods/IRPM applied, judgment or range rates selected without adequate documentation. Using schedule rating plan to offset filed and approved rate decrease or increase [CIC §§ (a), (c), 1857]

10. Workers’ Compensation
Rating Issues – adopting components to rating structure that have not been filed; using schedule rating plan to offset increase or decrease to filed rate level or change in experience mod [CIC §§ and 11735]
Claim handling issues – Failure to pay self-imposed penalty and interest on late pays; failure to
pay interest on delayed TTD payments;
required benefit notices not sent or not
sent timely.

11. Life and Annuities
Electronic Transmission – improper opt-in process [CIC § 38.6]
Suitability documentation for annuity sales – should be retained by company or agent, and be readily produced for exams (CIC §§ et seq.]
CIC §§ and disclosures – insurer lacks procedures or controls to ensure agents provide these required notices.
Payment of proceeds – late payment, failure to include interest or at proper rate, failure to provide written statement regarding interest applied [CIC § ].

12. Long-Term Care
Failure to provide clear explanation of benefits when payments are made – confusing format, not clearly identifying dates of service, lacking specific reasons when billed amounts are not fully paid [CCR §§ (b) and (b)]
Failure to disclose all applicable benefits – such as for Durable Medical Equipment [CCR § (a)]
Processes that do not provide adequate and reasonable assistance for the circumstances [CCR § (e)]

13. Disability Income
Coverage rescissions – are decisions to rescind fair, and based on appropriate grounds? [CIC § (h)(5)]
Late payment of benefits – benefits not paid timely; interest not included when applicable. [CIC §§ (a) and (b)]
Investigation of claim – failing to adequately investigate job duties and capacity to perform those duties [CCR § (d)]

14. Common Underlying Causes: Tips for Being Proactive
Systems issues – Involve business and compliance people in setting requirements for automation projects. Test, re-test, and test again before going to production! Oversee your GAs, TPAs and other vendors – Just contractually obligating them to comply with CA laws isn’t enough. Internal QC Procedures – build programs that focus on the right things; improving on existing systems can help resolve exam issues.

15. Questions?