PUBLIC REPORT OF THE MARKET CONDUCT EXAMINATION

OF THE CLAIMS PRACTICES OF THE


COLONIAL PENN LIFE INSURANCE COMPANY
NAIC # 62065 CDI # 1896-0

AS OF MAY 31, 2004


STATE OF CALIFORNIA


DEPARTMENT OF INSURANCE

MARKET CONDUCT DIVISION

FIELD CLAIMS BUREAU

TABLE OF CONTENTS

SALUTATION.......................................................................................1


SCOPE OF THE EXAMINATION...............................................................2
CLAIMS SAMPLE REVIEWED AND OVERVIEW OF FINDINGS......................3
TABLE OF TOTAL CITATIONS.................................................................4

SUMMARY OF CRITICISMS, INSURER COMPLIANCE ACTIONS


AND TOTAL RECOVERIES...................................................................... 5

STATE OF CALIFORNIA	John Garamendi,	Insurance Commissioner
DEPARTMENT OF INSURANCE
Consumer Services and Market Conduct Branch Field Claims Bureau, 11th Floor 300 South Spring Street Los Angeles, CA 90013

November 9, 2004

The Honorable John Garamendi

Insurance Commissioner

State of California

45 Fremont Street

San Francisco, California 94105


Honorable Commissioner:
Pursuant to instructions, and under the authority granted under Part 2, Chapter 1, Article 4, Sections 730, 733, 736, and Article 6.5, Section 790.04 of the California Insurance Code; and Title 10, Chapter 5, Subchapter 7.5, Section 2695.3(a) of the California Code of Regulations, an examination was made of the claims practices and procedures in California of:

Colonial Penn Life Insurance Company
NAIC #62065

Hereinafter referred to as the Companies.

This report is made available for public inspection and is published on the California Department of Insurance web site ( www.insurance.ca.gov) pursuant to California Insurance Code section 12938.

SCOPE OF THE EXAMINATION


The examination covered the claims handling practices of the aforementioned Company during the period June 1, 2003 through May 31, 2004. The examination was made to discover, in general, if these and other operating procedures of the Company conform with the contractual obligations in the policy forms, to provisions of the California Insurance Code (CIC), the California Code of Regulations (CCR), the California Vehicle Code (CVC) and case law. This report contains only alleged violations of Section 790.03 and Title 10, California Code of Regulations, Section 2695 et al. Any alleged violations of other relevant laws which may result from this examination will be included in a separate report which will remain confidential subject to the provisions of CIC Section 735.5.

To accomplish the foregoing, the examination included:

1. A review of the guidelines, procedures, training plans and forms adopted by the Company for use in California including any documentation maintained by the Company in support of positions or interpretations of fair claims settlement practices.
2. A review of the application of such guidelines, procedures, and forms, by means of an examination of claims files and related records.
3. A review of consumer complaints received by the California Department of Insurance (CDI) in the most recent year prior to the start of the examination.
The examination was conducted primarily at the office of the Colonial Penn Life Insurance Company in Philadelphia, Pennsylvania.
The report is written in a "report by exception" format. The report does not present a comprehensive overview of the subject insurer's practices. The report contains only a summary of pertinent information about the lines of business examined and details of the non-compliant or problematic activities or results that were discovered during the course of the examination along with the insurer's proposals for correcting the deficiencies. When a violation is discovered that results in an underpayment to the claimant, the insurer corrects the underpayment and the additional amount paid is identified as a recovery in this report. All unacceptable or non-compliant activities may not have been discovered, however, and failure to identify, comment on or criticize activities does not constitute acceptance of such activities.
Any alleged violations identified in this report and any criticisms of practices have not undergone a formal administrative or judicial process.

CLAIM SAMPLE REVIEWED AND OVERVIEW OF FINDINGS

The examiners reviewed files drawn from the category of Closed Claims for the period June 1, 2003 through May 31, 2004, commonly referred to as the "review period". The examiners reviewed 40 Individual Guaranteed Issue Graded Benefit Life claims files, 40 Group Guaranteed Issue Graded Benefit Life claims files, one Annuity Death claim file, five Group Whole Life claims files, 16 Individual Whole Life claims files, 11 Group Term Life one Accidental Death claim file and eight Scheduled Accident claims files. The examiners cited two claims handling violations of the Fair Claims Settlement Practices Regulations and/or California Insurance Code Section 790.03 within the scope of this report. Further details with respect to the files reviewed and alleged violations are provided in the following tables and summaries.

Colonial Penn Life Insurance Company
CATEGORY	CLAIMS FOR REVIEW PERIOD	REVIEWED	CITATIONS
Individual Guaranteed Issue Graded Benefit Life	1,384	40	1
Group Guaranteed Issue Graded Benefit Life	2,681	40	1
Annuity Death	2	1	0
Group Whole Life	21	5	0
Individual Whole Life	62	16	0
Group Term Life	45	11	0
Health	34	9	0
TOTALS	4,229	122	2

TABLE OF TOTAL CITATIONS
Citation	Description	Colonial Penn Life Insurance Company
CCR §2695.7(d)	The Company persisted in seeking information not reasonably required for or material to the resolution of a claim dispute.	1
CIC §790.03 (h)(3)	The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies.	1
Total Citations		2

SUMMARY OF CRITICISMS, INSURER

COMPLIANCE ACTIONS AND TOTAL RECOVERIES

1. The Company persisted in seeking unnecessary information. In one instance, the Company persisted in seeking information not reasonably required for or material to the resolution of a claim dispute. The Department alleges this act was in violation of CCR §2695.7(d).

Summary of Company Response: The Company acknowledged this and advised their standard procedure of handling claims for all policies on a single life was not followed in this case. The separation occurred due to an oversight at the time of initial claim handling. The Company revised the initial claim filing instruction letters and conducted training sessions for the life claims staff and the contestable claims staff to reinforce the existing procedure.

2. The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims. In one instance, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. The Department alleges this act is in violation of CIC §790.03 (h)(3).

Summary of Company Response: The Company concedes that the examiner made a mistake in paying all of the proceeds to one beneficiary. The Company conducted an investigation on August 30, 2004 to verify the unpaid beneficiary received his share of the settlement. As a result of this claim examination, on August 30, 2004 Claim Representative training was conducted by the Company to ensure compliance with standard procedures of correcting and indemnifying appropriate beneficiaries.

Last Revised - December 30, 2004
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