PUBLIC REPORT OF THE MARKET CONDUCT EXAMINATION
OF THE CLAIMS PRACTICES OF THE
TABLE OF CONTENTS
March 9, 2006
The Honorable John Garamendi
Insurance Commissioner
State of California
45 Fremont Street
San Francisco, California 94105
Hereinafter referred to as FGLIC, ALAIC or collectively 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.
The examiners reviewed files drawn from the category of Closed Claims for the period June 1, 2004, through May 31, 2005, commonly referred to as the "review period". The examiners reviewed 125 FGLIC claim files and two ALAIC claim files. The examiners cited 77 claim 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.
Americom Life and Annuity Insurance Company | |||
LINE OF BUSINESS/CATEGORY |
CLAIMS FOR REVIEW PERIOD |
REVIEWED |
CITATIONS |
Annuity |
8 |
2 |
1 |
TOTALS |
8 |
2 |
1 |
WAIVER of PREMIUM |
NUMBER OF CITATIONS |
CCR §2695.4(a) |
12 |
CCR §2695.3(b)(2) |
3 |
CCR §2695.3(a) |
1 |
CCR §2695.7(g) |
1 |
SUBTOTAL |
17 |
TOTAL |
77 |
Summary of Company Response: The Company agrees that at that time the Company's Third Party Administrators processing the claims were not providing detailed breakdown of claim settlements in paying life and annuity claims. The Company consolidated claim processing into a single unit and formulated Statement of Benefits form to provide the beneficiary a detailed breakdown of claim settlement and explanation of the interest amount calculation in life and annuity claims. The Company implemented the use of this form on January 1, 2005 and has been in compliance with this regulation since the implementation.
2. In two instances, the Company failed to maintain all documents, notes and work papers in the claim file. These instances involved Fidelity and Guaranty Life Insurance Company. In the first instance, the acknowledgment letter is missing in the claim file. In the second instance, the claim file does not contain any correspondence from the date the notice of claim was received up to the time the proof of loss was received. The Department alleges these acts are in violation of CCR §2695.3(a).
Summary of Company Response: The Company acknowledges that in two instances the claim file was not properly documented. The Company has conducted training with its staff as a result of this examination to ensure that all claim files are documented pursuant to CCR § 2695.3(a) and Company procedure.
ANNUITY
3. In four instances, the Companies failed to maintain all documents, notes and work papers in the claim file. Of the instances cited, three involved Fidelity and Guaranty Life Insurance Company and one involved Americom Life and Annuity Insurance Company. In the first three instances, there is no documentation when the notice of claim was received; the acknowledgment letter is missing and the cash value detail screen printout or settlement worksheet is not in the file. In the fourth instance, the cash value detail screen printouts and the copy of the settlement letter are missing. The Department alleges these acts are in violation of CCR §2695.3(a).
Summary of Companies' Response: It is the Companies' procedure to maintain letters in its claim files. The Companies began adding a type written "claim notification" form to all imaged files reported after 1/1/05 to ensure notices of claims are documented. This new procedure will be monitored through quality control to ensure all documents, notes and work papers are maintained in the claim file.
4. In four instances, the Company failed to provide to the claimant an explanation of benefits including the name of the provider or services covered, dates of service, and a clear explanation of the computation of benefits. These instances involved Fidelity and Guaranty Life Insurance Company. In two instances involving option for spousal continuance, the beneficiary was not provided with confirmation of the change and explanation of benefits in opting for spousal continuance. In two instances involving continuance of monthly benefits, the beneficiary was not provided with clear explanation of the monthly benefit and what period the first payment covered. The Department alleges these acts are in violation of CCR §2695.11(b).
Summary of Company Response: It is the Company's practice to send a letter confirming the transaction on spousal continuance and continuance of monthly benefits. The Company acknowledges the letters in these files were either not sent or were missing in the file. As a result of this examination, the Company instructed all staff involved in the claims review process on the regulatory requirements of CCR § 2695.11(b).
5. In three instances, the Company attempted to settle a claim by making a settlement offer that was unreasonably low. These instances involved Fidelity and Guaranty Life Insurance Company. In two instances, the settlement was based on the fund value or commuted value prior to the check issue date. In one instance, the settlement was re-calculated because there was no documentation supporting the basis of the initial settlement. The Department alleges these acts are in violation of CCR §2695.7(g).
Summary of Company Response: As a result of this examination, the Company implemented adjustments to its administrative system and changes to its claims procedures to ensure that payment checks are produced in an overnight cycle resulting in settlement values for the same date checks are issued.
6. In two instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. These instances involved Fidelity and Guaranty Life Insurance Company. In the first instance, the claim was paid four months after the proof of loss was received. In the second instance, there was no attempt to contact the fourth beneficiary for five months to conclude the claim. The Company did not follow the Company's procedure of following up every 30 days. The Department alleges these acts are in violation of CIC §790.03(h)(3).
Summary of Company Response: As a result of this examination, the Company added a new measure of reviewing the timeliness of requesting additional documentation in its quality review process and will start sharing feedback with the claims examiners. The Company made all parties involved in the claims review aware of the regulatory obligations and assigned responsibility to the claims examiners to ensure that claim reviews are completed within regulatory standards.
7. In one instance, the Company failed to record the date the Company received, date the Company processed and date the Company transmitted or mailed every relevant document in the file. This instance involved Fidelity and Guaranty Life Insurance Company. The Department alleges this act is in violation of CCR §2695.3(b)(2).
Summary of Company Response: It is the Company's procedure to date stamp the document to reflect the date of receipt. However, in January 2005, the Company discovered that the purple date-stamping machine created a stamp that was difficult to view once the file was imaged. The Company switched to a larger, black date stamp sometime in January or February 2005 to resolve the visibility issue in imaged documents.
8. In one instance, the Company failed to acknowledge notice of claim within 15 calendar days. This instance involved Fidelity and Guaranty Life Insurance Company. The Department alleges this act is in violation of CCR §2695.5(e)(1).
Summary of Company Response: As a result of the examination, the Company implemented a new procedure to acknowledge claims within two business days and in no event more than 10 business days from receipt of claim. This new procedure will be monitored through quality control to ensure full compliance with Company procedures and regulatory requirements.
Summary of Company Response: It is the Company's normal procedure to provide necessary forms, instructions, and reasonable assistance within 15 calendar days. As a result of this examination, the Company improved its standard of mailing claim forms and providing instructions and assistance to within 2 business days of receipt of notice of claim and in no event more than 10 business days from receipt of claim. This new procedure will be monitored through quality control to ensure procedural and regulatory requirements are met.
10. In 13 instances, the Company failed to disclose all benefits, coverage, time limits or other provisions of the insurance policy. These instances involved Fidelity and Guaranty Life Insurance Company. Of the instances cited, one involved disability claim and 12 involved waiver of premium claims. The Company did not disclose that the claimant did not have disability coverage and the Company did not disclose the waiver of premium coverage in the denial letter or approval letter. The Department alleges these acts are in violation of CCR §2695.4(a).
Summary of Company Response: The Company agrees that the different examiners that started the disability investigation relied on the other to disclose the coverage and both failed to do so. This was an isolated incident. The Company had a quality control issue for a period of time, where the letters would address the disability income claim but not the waiver of premium claim. To address this issue, the Company provided additional training to the examiners, instructing them to address waiver of premium in all disability correspondence.
Summary of Companies' Response: The Company agrees that the claim documents, notes and letters are missing in the files. As a result of this examination, the Company reinforced this regulation requirement and company procedure with claims handling staff. Additionally, management will conduct quality control reviews to ensure all documents, notes and work papers are maintained in the claim file.
12. In eight instances, the Company failed to record the date the Company received, date the Company processed and date the Company transmitted or mailed every relevant document in the file. These instances involved Fidelity and Guaranty Life Insurance Company. There were no records when relevant documents were received in five disability claims and three waiver of premium claims. The Department alleges these acts are in violation of CCR §2695.3(b)(2).
Summary of Company Response: The Company cannot ascertain or cannot determine when the relevant document was received because the date stamp is not visible in imaging. It is the Company's practice to date stamp all claims documents received on the date they are received. The Company discovered that the purple date-stamping machine created a stamp that was difficult to view once the file was imaged. The Company switched to a larger, black date stamp sometime in February 2005 to correct the problem.
13. In five instances, the Company failed to include a statement in its claim denial that, if the claimant believes the claim has been wrongfully denied or rejected, he or she may have the matter reviewed by the California Department of Insurance. These instances involved Fidelity and Guaranty Life Insurance Company. The denial letter did not reference California Department of Insurance in denying disability claims. The Department alleges these acts are in violation of CCR §2695.7(b)(3).
Summary of Company Response: The Company agrees that these were omissions. It is the Company's standard practice to include the California Department of Insurance language. As a result of this examination, the Company is now verifying the inclusion of this information as part of its quality review.
Summary of Company Response: The Company agrees with the examination findings. To ensure future compliance, the Company implemented a procedure to state the specific monthly disability amount in the approval letter.
15. In three instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. These instances involved disability claims. In two instances, there were delays in clarifying information and requesting additional information to conclude the claims. In one instance the Company did not follow their procedure of processing an appeal no later than 30 days from the date of receipt. The Department alleges these acts are in violation of CIC §790.03(h)(3).
Summary of Company Response: The Company acknowledges the delay in clarifying the information. As a result of this examination, the Company added a new measure of reviewing the timeliness of requesting additional documentation in its quality review process and will share feedback results with the claims examiners.
16. In two instances, the Company attempted to settle a claim by making a settlement offer that was unreasonably low. These instances involved Fidelity and Guaranty Life Insurance Company. The first instance involved rescinding a disability rider without refunding the premium. The second instance involved denying the waiver of premium rider based on the reference in the medical records instead of evidence of treatment. The Department alleges these acts are in violation of CCR §2695.7(g).
Summary of Company Response: The Company agrees that the premium refund was not done on the rescission of the disability rider. As a result of this examination, the Company issued the refund on 10/4/05 on the rescinded disability rider and reviewed the waiver of premium claim. The Company agreed that there was no sufficient medical evidence to justify the denial of the claim. The Company overturned the waiver of premium denial and refunded the premium collected on 8/17/05.
17. In one instance, the Company failed to respond to communications within 15 calendar days. This instance involved Fidelity and Guaranty Life Insurance Company. The Company did not respond to a physician's letter indicating a disability claim. The Department alleges this act is in violation of CCR §2695.5(b).
Summary of Company Response: The Company concurs that communication was not responded to within 15 days upon receipt. However, the Company contends that the correspondence did not clearly suggest that a response was expected. To assure future compliance, quality control reviews will focus on measures to improve and respond timely and appropriately to communications within two business days and in no event more than 10 business days from receipt of claim.
18. In one instance, the Company failed to acknowledge notice of claim within 15 calendar days. This instance involved Fidelity and Guaranty Life Insurance Company. In this instance, the Company acknowledged the notice of claim 22 days after it was received. The Department alleges this act is in violation of CCR §2695.5(e)(1).
Summary of Company Response: The Company agrees with the examination findings and states that it is their normal business procedure to acknowledge notice of claim within 15 calendar days. As a result of the examination, the Company implemented a new procedure to acknowledge claims within two business days and in no event more than 10 business days from receipt of claim. This new procedure will be monitored through quality control to ensure full compliance with Company procedures and regulatory requirements.
