delaware department of insurance market conduct … · prohibited unfair claim settlement...

DELAWARE DEPARTMENT OF INSURANCE

MARKET CONDUCT EXAMINATION REPORT

State Farm Fire & Casualty Company NAIC #25143

State Farm Mutual Automobile Insurance Company NAIC #25178

Examination Authority #25143-15-770 & #25178-15-771

One State Farm Plaza

Bloomington, IL 61710

As of

June 30, 2015

State Farm Fire & Casualty Company State Farm Mutual Automobile Insurance Company

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TableofContents

Contents

EXECUTIVE SUMMARY ........................................................................................................ 2

SCOPE OF EXAMINATION..................................................................................................... 3

METHODOLOGY ..................................................................................................................... 3

COMPANY HISTORY AND PROFILE ................................................................................... 4

COMPANY OPERATIONS AND MANAGEMENT ............................................................... 5

COMPLAINT HANDLING ....................................................................................................... 5

MARKETING AND SALES ...................................................................................................... 6

PRODUCER LICENSING ......................................................................................................... 8

POLICYHOLDER SERVICES .................................................................................................. 9

UNDERWRITING AND RATING ............................................................................................ 9

CLAIMS ................................................................................................................................... 10

Honorable Karen Weldin Stewart CIR-ML Insurance Commissioner State of Delaware 841 Silver Lake Boulevard Dover, Delaware 19904 Dear Commissioner Stewart: In compliance with the instructions contained in Certificate of Examination Authority Numbers 25143-15-770 & 25178-15-771 and pursuant to statutory provisions including 18 Del. C. §318-322, a comprehensive market conduct examination has been conducted of the affairs and practices of:

State Farm Fire & Casualty Company

State Farm Mutual Auto Insurance Company The examination was performed as of June 30, 2015. State Farm Fire & Casualty Company and State Farm Mutual Auto Insurance Company, hereinafter referred to as the "Company" or “Companies”, was incorporated under the laws of Illinois. The examination consisted of two phases, an on-site phase and an off-site phase. The on-site phase of the examination was conducted at the following Company location:

1500 State Farm Blvd. Charlottesville, VA 22909

The off-site examination phase was performed at the offices of the Delaware Department of Insurance, hereinafter referred to as the "Department" or "DEDOI,” or other suitable locations. The report of examination herein is respectfully submitted.


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EXECUTIVE SUMMARY

State Farm Mutual Automobile Insurance Company is the nation's largest automobile insurer. Corporate offices are located in Bloomington, Illinois. This company is licensed in all 50 states and DC. The underwriting of personal lines auto and fire business is done primarily in the Charlottesville, VA Operations Center. This Company does not sell Homeowners insurance. State Farm Fire and Casualty Company is the predominant writer of the State Farm Group's non-automobile property and casualty insurance in all states except California, Florida and Texas. Corporate offices are located in Bloomington, Illinois. This company is licensed in all 50 states and the District of Columbia. The underwriting of personal lines auto and fire business is done primarily in the Charlottesville, VA Operations Center. The examination was a comprehensive review of the Company’s activities related to its Private Passenger Automobile and Homeowners lines of business during the examination period of January1, 2014 through June 30, 2015. The following exceptions were noted in the areas of operation reviewed:

9 Exceptions - 18 Del. C. §2304

Failure to respond to regulatory inquiries. For untimely or incomplete responses to the Delaware Insurance Department

1 Exception - 18 Del. C. §1715.

Appointments. - For failure to properly appoint an agent -

1 Exception - 18 Del C. § 2517 Adherence to filings

Incorrectly noting a policyholder as a female rather than male.

6 Exceptions - 18 Del. C. § 3905 Cancellation or nonrenewal of automobile policy — Notice of cancellation or intention

not to renew; notice of reasons - For failure to notify insureds of their right to contest an action and request a

hearing 4 Exceptions - 18 Del. Admin. Code 902

Prohibited Unfair Claim Settlement Practices. - For failure to affirm or deny coverage within 30 days of proof of loss:

1 Exception - 18 Del. C. § 2304

Unfair methods of competition and unfair or deceptive acts or practices defined. - For failure to respond to arbitration


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1 Exception - 18 Del. Admin. Code 902

Prohibited Unfair Claim Settlement Practices - For failure to affirm or deny coverage within 30 days of proof of loss and failure

to maintain adequate records 1 Exception - 18 Del. C. § 2304

Unfair methods of competition and unfair or deceptive acts or practices defined. - For failure to respond to the insured’s request for claim information

2 Exceptions - 18 Del. Admin. Code 902 Prohibited Unfair Claim Settlement Practices

- For failure to send appropriate follow-up correspondence to the claimant and failure to send a Personal Property Inventory Form when required.

1 Exception- 18 Del. C. § 2304

Unfair methods of competition and unfair or deceptive acts or practices defined. - For failure to send the insured a decision letter in a timely manner.

1 Exception - 18 Del. Admin. Code 902

Prohibited Unfair Claim Settlement Practices. - For failure to send the claimant a Personal Injury Protection (PIP) kit

SCOPE OF EXAMINATION

The Market Conduct Examination was conducted pursuant to the authority granted by 18 Del. C. §318-322 and covered the experience period of January 1, 2014 through June 30, 2015. The examination was a comprehensive review of the Companies’ activities related to its Private Passenger Automobile and Homeowners lines of business. METHODOLOGY

This examination was performed in accordance with Market Regulation standards established by the Department and examination procedures suggested by the NAIC. While the examiner’s report on the errors found in individual files, the examination also focuses on general business practices of the Company. The Company identified the universe of files for each segment of the review. Based on the universe sizes, random sampling was utilized to select the files reviewed during this examination. Delaware Market Conduct Examination Reports generally note only those items to which the


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Department, after review, takes exception. An exception is any instance of Company activity that does not comply with an insurance statute or regulation. Exceptions contained in the Report may result in imposition of penalties. Generally, practices, procedures, or files that were reviewed by Department examiners during the course of an examination may not be referred to in the Report if no improprieties were noted. However, the Examination Report may include management recommendations addressing areas of concern noted by the Department, but for which no statutory violation was identified. This enables Company management to review these areas of concern in order to determine the potential impact upon Company operations or future compliance. Throughout the course of the examination, Company officials were provided status memoranda, which referenced specific policy and/or claim numbers with citation to each section of law violated. Additional information was requested to clarify apparent violations. Written summaries were provided to the Company on the exceptions found. COMPANY HISTORY AND PROFILE

State Farm Mutual Automobile Insurance Company was incorporated on March 29, 1922, under the Uniform Mutual Law of Illinois. The Company commenced business on June 7, 1922. State Farm Mutual Automobile Insurance Company is the lead company in the State Farm Group. The State Farm Group offers multiple lines of property, casualty and life and health insurance throughout the United States and Canada through an exclusive agency force. There are eight affiliated property and casualty carriers and four life insurance carriers in The State Farm Group. Corporate offices are located in Bloomington, Illinois. State Farm Mutual Automobile Insurance Company is licensed in all 50 states and DC. The underwriting of personal lines auto and fire business is done primarily in the Charlottesville, VA Operations Center. The Company does not sell homeowners insurance. According to their 2014 Annual Statement filed with the Department, State Farm Mutual Automobile Insurance Company reported Private Passenger Automobile No-Fault (Personal Injury Protection) premium consideration in Delaware in the amount of $34,676,706, Other Private Passenger Automobile Liability premium consideration in Delaware in the amount of $79,121,602, and Private Passenger Automobile Physical Damage premium consideration in Delaware in the amount of $41,878,883. State Farm Fire and Casualty Company (was organized on June 12, 1935, under the laws of the State of Illinois. The Company, incorporated as State Farm Fire Insurance Company, was licensed and commenced business on June 29, 1935. The Company name was adopted on July 1, 1950, when merged with the State Farm Casualty Company. State Farm Fire and Casualty is the predominant writer of the Group's non-automobile property and casualty insurance in all states except California, Florida and Texas. State Farm Fire and


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Casualty Company is a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company. State Farm Fire and Casualty Company is licensed in all 50 states and the District of Columbia. The underwriting of personal lines auto and homeowners business is done primarily in the Charlottesville, VA Operations Center. According to their 2014 Annual Statement filed with the Department, the Company reported Homeowners multi-peril insurance premium considerations in Delaware in the amount of $59,913,772, Private Passenger Automobile No-Fault (Personal Injury Protection) premium consideration in Delaware in the amount of $3,084,516, Other Private Passenger Automobile Liability premium consideration in Delaware in the amount of $9,249,237 and Private Passenger Automobile Physical Damage premium consideration in Delaware in the amount of $3,700,774. COMPANY OPERATIONS AND MANAGEMENT

The Company provided the following documents for review:

A Company written overview of operations including history and profile Organizational charts Management structure Entities involved in the sale/service of Property and Casualty products Annual statements Financial and Market Conduct Exam Reports Third Party Entities contracts to perform services on behalf of the Company Internal audits Anti-Fraud procedures and reports Privacy protocols and procedures The documentation was reviewed to ensure compliance with the State of Delaware Statutes and Regulations. A concern was noted regarding the Company’s Internal Audit function. Although internal audits are performed and reports are issued, the examiners noted eleven instances where corrective actions were not yet completed. Concern: The Company should continue to ensure corrective actions noted in internal audit reports are properly considered and implemented through follow-up reviews to internal audit report findings. COMPLAINT HANDLING

The Companies provided lists of complaints filed with the Companies for the examination period of January 1, 2014 through June 30, 2015. The lists included complaints from the Delaware Department of Insurance, complaints received directly from consumers and complaints received via third parties like the Better Business Bureau. The complaint log consisted of 405 complaints


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(284 Private Passenger Auto (PPA) & 121 Property) during the examination period, from which 100 (71 PPA & 29 Property), encompassing were selected and reviewed. The Companies also provided their Complaint Handling guidelines and procedures, as well as the complaint trend reports and summaries used to monitor their complaints. These were reviewed and it was noted that there was a 78% increase, Enterprise-wide, in the number of Complaints from 2014. When asked, the Companies stated that the major factors for this increase were the updated Enterprise policy for complaint handling that clarified the definition of a complaint and the transitioning to another Department of the complaint handling responsibilities. The Companies also stated that another key factor was the sharp rise in Maryland NOPI (Notice of Premium Increase) protest complaints.

9 Exceptions - 18 Del. C. §2304 Unfair methods of competition and unfair or deceptive acts or practices defined.

(26) Failure to respond to regulatory inquiries. — No person shall, with such frequency as to indicate a general business practice, fail to provide preliminary substantive responses to inquiries from the Department of Insurance regarding the denial of claims, cancellation, nonrenewal, or refusal of benefits, refusal to pre-authorize benefits, or violations of this title, within 21 calendar days of such inquiry. A response in compliance with this paragraph shall not preclude the provision of additional information responsive to the inquiry.

The examiners noted concerns related to the Company’s responses to DEDOI inquiries regarding consumer complaints. The Company’s definition of “substantive response” and the DEDOI expectation of “substantive response” are not always in agreement. The Company’s response often falls short of the detail of response expected by the DE DOI. The DE DOI expects timely responses to inquiries, comprehensive responses that address each issue identified in the complaint and a formal, written response on Company letterhead. Written responses should always be submitted, even after verbal responses are provided. Recommendation: The Company should actively work to ensure they meet the DEDOI expectations for providing substantive responses to complaint inquiries. Company responses should be provided in written form on Company letterhead. Formal written responses should be provided in accordance with DE DOI requirements. MARKETING AND SALES

The Companies provided a list of 16,602 advertising materials in use during the examination period. All were company-generated advertisements. Agents are not allowed to create advertising materials. From this list, a sample of twenty-five (25) was selected for review. The sample included such items as apartment door hangers, business cards, story boards, and ads written in non-English languages. The items were reviewed to ascertain compliance with Delaware Statutes, Rules, and Regulations. Specifically, the ad content was reviewed to verify that sources were cited, as appropriate, when percentages, numbers, and monetary amounts were


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quoted within the ad content. There were no violations of Delaware Code noted in the review however a concern was noted. Concern - 18 Del. C. §2304 (2). False information and advertising generally.

— No person shall make, publish, disseminate, circulate or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, an advertisement, announcement or statement containing any assertion, representation or statement with respect to the business of insurance or with respect to any person in the conduct of the insurance business, which is untrue, deceptive or misleading.

Ad #1 content: "Come in for a test save. Total average savings of XXX when you combine home and auto policies. Average annual savings based on national 2008 survey of new policyholders who reported savings by switching to State Farm." According to the Company, the variable (i.e., XXX) is populated based on a recent version of an annual survey conducted by the Center for Consumer Feedback, which is part of Strategic Resources at State Farm. Ad #2 content: "Find your way to savings" one-page ad with agent contact information. The amount of savings is left blank. The XXX amount is based on a six-year-old, 2009 survey. According to the Company, the variable (i.e., XXX) is populated based on a recent version of an annual survey conducted by the Center for Consumer Feedback, which is part of Strategic Resources at State Farm. Ad #3 content: "Gotta love a good combo…especially when it saves you money" One-page ad with agent contact information. "I can help you save an average of $XXX by combining renters and auto insurance." "Average annual per household savings based on a XXXX national survey of new policyholders who reported savings by switching to State Farm." The amount of savings is left blank, as is the year the survey was conducted. According to the Company, the variables (i.e., XXX and the year of the survey) are populated based on a recent version of an annual survey conducted by the Center for Consumer Feedback, which is part of Strategic Resources at State Farm. Ad #s 1-3 quoted monetary figures related to average annual savings realized by policyholders after switching to State Farm. While some of these ads referenced a “survey,” none of the ads provided a link to a copy of the survey results. The examiner obtained a copy of the survey results from the Company, reviewed the survey and the methodology behind the survey results, and made the following observations. The survey results were dated 2008; survey results should be more current. The results were based upon savings “reported” by customers after switching to State Farm, and were not necessarily based on “actual” savings. These “reported” savings could not easily be verified for accuracy and were subjective in nature. It is questionable as to whether the survey results reflect a true product comparison, since not all of the switches may have


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resulted in the same type of coverage that was previously afforded. Moreover, the survey results were limited to those consumers who self-reported savings after switching to State Farm. The annual savings calculation did not take into account those who reported no savings at all after switching to State Farm. The survey was conducted by the Center for Consumer Feedback, a research arm of State Farm.

Concern: While the Company is not in violation of Delaware Code, the concern is that the Company should continue to review all advertisements to ensure they are not untrue, deceptive, or misleading. Surveys quoted should be more current than noted above and the source of stated statistics should be noted on any advertisements that include such data. The Company provided documentation of the development/approval process for advertising materials, as well as a copy of the procedures for notifying agents about new products and changes in insurance statutes and regulations. These documents were reviewed with no exceptions noted. PRODUCER LICENSING

The Companies provided a list of all producers appointed with the Companies in Delaware for the examination period. There were 1,163 for State Farm Mutual Automobile Insurance Company and 1,112 for State Farm Fire & Casualty Company, totaling 2,276. These were compared to the records of the Delaware Department of Insurance.. The examiners also randomly selected 5 Homeowner Dwelling policies, 5 Tenant and Condo policies and 5 Mobile Home policies new business applications to verify licensure of the selling agent. 1 Exception - 18 Del. C. §1715. Appointments.

— (b) To appoint a producer as its agent, the appointing insurer shall file, in a format approved by the Insurance Commissioner, a notice of appointment within 15 days from the date the agency contract is executed or the first insurance application is submitted. An insurer may also elect to appoint a producer to all or some insurers within the insurer's holding company system or group by the filing of a single appointment request. The group appointment provision of this section is only applicable upon implementation by this Department of an electronic appointment process.

The Company failed to file with the DEDOI its appointment of a producer for both SFF&CC and SFMAIC. The Company agreed that they neglected to submit the electronic appointment, and have since done so. Recommendation: The Company must review its electronic appointment procedures to ensure complete, timely and accurate data is provided to the DDOI in compliance with 18 Del. C.


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§1715. The Company also provided their agent recruitment process, the appointment/verification and termination procedures and their commission schedules and incentives/awards. These were reviewed and no exceptions were noted. POLICYHOLDER SERVICES

The Companies provided a copy of their policies and procedures related to the handling of consumer inquires and requests for information used for the examination period. These were reviewed and found to be appropriate. An interview was held with the appropriate Company personnel to get an explanation of their service standards, how compliance is measured and how they manage, monitor and evaluate their support staff. The Company personnel provided suitable answers. Transaction testing was also performed. A sample of 116 PPA and 116 Homeowners various types of transactions were reviewed. There were no exceptions noted. UNDERWRITING AND RATING

The Companies provided a copy of their Private Passenger Auto and Homeowners Underwriting and Rating Manuals, along with notices issued to insureds that pertain to credit information, deductibles, and disclosures used for the examination period. The documents were reviewed and no exceptions were noted. Private Passenger Automobile (PPA) The Companies use a six-month policy period for Private Passenger Automobile. For the examination period, this resulted in a population of 8,198 New Business and 15,218 Renewals for State Farm Mutual Automobile Insurance Company (SFMAIC) and 3,379 New Business and 5,738 Renewals for State Farm Fire and Casualty Company (SFF&CC), totaling 32,533 policies. From each Company, a random sample, of 25 New Business and 25 Renewals, were selected for review. 1 Exception - 18 Del C. § 2517 Adherence to filings. No insurer shall make or issue a contract or policy except in accordance with the filings which are in effect for the insurer as provided in this chapter or in accordance with § 2505 (exemption from filing) or § 2509 (excess rates) of this title. This section shall not apply to contracts or policies for inland marine risks as to which filings are not required.


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The Company incorrectly identified a policyholder as a female in the coding and rating of a policy.

Recommendation: The Company must ensure all policies are correctly coded so rates are appropriate for the accepted risk. The Company also terminated 21,853 State Farm Mutual Automobile Insurance Company (SFMAIC) policies and 5,260 State Farm Fire and Casualty Company (SFF&CC), totaling 27,113 policies terminated during the examination period of January 1, 2014 through June 30, 2015. A weighted, by the reason for the action, sample of 25 was selected for each Company. 6 Exceptions – 18 Del. C. § 3905 Cancellation or nonrenewal of automobile policy — Notice of cancellation or intention not to renew; notice of reasons (e) Each notice of cancellation, except as provided in §3903(b), or nonrenewal of a policy shall contain or be accompanied by a notice of the named insured’s right to apply to the Commissioner for a hearing thereon.

Six termination notices did not contain the language notifying the insured of their right to contest the action and request a hearing. The Company agreed and stated that their programming was updated on May 17, 2015 to automatically include this notification on all cancellations. Previously, the underwriter had to select it in the appropriate situations. Recommendation: The Company must ensure their programs are adequately updated to ensure the proper language is included in cancellation notices.

Fire (Property) Lines The State Farm Fire and Casualty Company (SFF&CC), uses a twelve-month policy period for the Fire lines of business. The Company provided a population of 2,417 Dwelling, 3,225 Tenants/Condos and 102 Manufactured Homes New Business, and 4,327 Dwelling, 3,781 Tenants/Condos and 264 Manufactured Homes Renewals, totaling 14,116 policies. From this population, the examiners selected 25 Dwelling, 40 Tenants/Condo and 10 Manufactured Homes New Business and 25 Dwelling, 25 Tenants/Condos and 11 Manufactured Homes Renewals. There were no exceptions noted. The Company also terminated 21,046 policies during the examination period of January 1, 2014 through June 30, 2015. A sample of 25 was selected. There were no exceptions noted. CLAIMS

The Companies provided a copy of their procedures and reference materials related to the handling of claims used for the examination period. The documents were reviewed and found to


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be appropriate. The Companies also provided copies of all newsletters, bulletins and other documents regularly sent to the claims adjusters. A random sample of the documents was selected and reviewed. There were no issues with their content. Private Passenger Automobile-Paid Claims For the examination period there were 42,465 Paid Claims for State Farm Mutual Automobile Insurance Company (SFMAIC) and 5,350 for State Farm Fire and Casualty Company (SFF&CC), totaling 47,815. From each Company, sample of 109 Paid claims was selected, totaling 218 claims. 4 Exceptions. 18 Del. Admin. Code 902 Prohibited Unfair Claim Settlement Practices. § 1.2.1.5 Failing to affirm or deny coverage or a claim or advise the person presenting the claim, in writing, or other proper legal manner, of the reason for the inability to do so, within 30 days after proof of loss statements have been received by the insurer.

Four claims had their liability decision made in excess of thirty days after the proof of loss was received. Recommendation: The Company must review its claim handling procedures to ensure liability decisions are made within 30 days after proof of loss statements have been received by the insurer, in compliance with 18 Del. Admin. Code 902 § 1.2.1.5 & 18 Del. C. §2304 (16). 1 Exception. 18 Del. C. § 2304 Unfair methods of competition and unfair or deceptive acts or practices defined. The following are hereby defined as unfair methods of competition and unfair or deceptive acts or practices in the business of insurance: (16) Unfair claim settlement practices. — No person shall commit or perform with such frequency as to indicate a general business practice any of the following: b. Failing to acknowledge and act reasonably promptly upon communication with respect to claims arising under insurance policies. The Company failed to respond to arbitration. Recommendation: The Company must review its arbitration response procedures to ensure they are properly followed. in compliance with 18 Del. Admin. Code 902 § 1.2.1.2 & 5 & 18 Del. C. §2304 (16).

1 Exception. 18 Del. Admin. Code 902 Prohibited Unfair Claim Settlement Practices – § 1.2.1 The Following Claim Settlement Practices When Committed or Performed with such Frequency as to Indicate a General Practice are Prohibited - § 1.2.1.5 Failing to affirm or deny coverage or a claim or advise the person presenting the claim, in writing, or other proper legal


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manner, of the reason for the inability to do so, within 30 days after proof of loss statements have been received by the insurer. The claim had its liability decision made in excess of thirty days after the proof of loss was received. In addition, the Company was unable to provide their insured’s recorded statement as the recording was “blank”, to the arbitration panel. The Company lost in arbitration, it was noted that the panel would like to have heard the statement. Recommendation: The Company must review its claims handling procedures to ensure the follow-up process is properly followed in compliance with 18 Del. Admin. Code 902 § 1.2.1.2 & 18 Del. C. §2304 (16).

In addition, a concern was noted in one file where the records were not updated in a timely manner. Though the liability was established on September 18, 2014, which was within the 30-day time period, it was not updated in the system until November 5, 2014 making it appear that the decision was not made in the 30-day time period. The Company should ensure all records are updated in a timely manner. Fire (Property) Lines-Paid Claims For the examination period of January 1, 2014 through June 30, 2015, there were 4,906 Paid Claims for State Farm Fire and Casualty Company (SFF&CC). A weighted, by the cause of loss, sample of 109 Paid claims was selected. 1 Exception. 18 Del. C. § 2304 Unfair methods of competition and unfair or deceptive acts or practices defined.: b. Failing to acknowledge and act reasonably promptly upon communication with respect to claims arising under insurance policies; The Company failed to respond to the insureds request for claim information on June 23, 2015, during which the insured requested a breakdown of the payment. The Company indicated that after the examiners questioned the file, they had reopened the file and had spoken with the insured on February 4, 2016, and that an additional payment would be made.

Recommendation: The Company must acknowledge policyholder communication in a timely manner. Private Passenger Automobile-Closed Without Payment Claims For the examination period of January 1, 2014 through June 30, 2015, there were 13,870 claims that were Closed Without Payment for State Farm Mutual Automobile Insurance Company (SFMAIC) and 1,650 for State Farm Fire and Casualty Company (SFF&CC), totaling 15,520. From each Company, a weighted, by the cause of loss, sample of 109 Closed Without Payment claims were selected, totaling 218 claims. There were no exceptions noted.


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Fire (Property) Lines-Closed Without Payment Claims For the examination period of January 1, 2014 through June 30, 2015, there were 1,423 claims that were Closed Without Payment for State Farm Fire and Casualty Company (SFF&CC). A weighted, by the cause of loss, sample of 109 Closed Without Payment claims was selected. 2 Exceptions. 18 Del. Admin. Code 902 Prohibited Unfair Claim Settlement Practices § 1.2.1 (16) Unfair claim settlement practices. — No person shall commit or perform with such frequency as to indicate a general business practice any of the following: b. Failing to acknowledge and act reasonably promptly upon communication with respect to claims arising under insurance policies; The Company failed to send appropriate follow-up correspondence to the claimant. The Company agreed and has reopened the file for further investigation. The Company did not send a Personal Property Inventory Form to the claimant nor did they follow-up in two instances where a follow-up was anticipated. The Company agreed and has reopened the file for further investigation. Recommendation: The Company must review claims procedures to ensure follow-up correspondence is sent to insureds in a timely manner. 1 Exception. 18 Del. C. § 2304 Unfair methods of competition and unfair or deceptive acts or practices defined. (16) Unfair claim settlement practices. — No person shall commit or perform with such frequency as to indicate a general business practice any of the following: b. Failing to acknowledge and act reasonably promptly upon communication with respect to claims arising under insurance policies; The Company made the claim decision on 2/5/2015 but did not send the decision letter until 3/21/2015. The Company agreed and has reopened the file for further investigation. Recommendation: The Company must ensure decision letters are sent in a timely manner. Private Passenger Automobile-Litigated Claims For the examination period of January 1, 2014 through June 30, 2015, there were 2,908 Paid and Closed Without Payment claims that were Litigated for State Farm Mutual Automobile Insurance Company (SFMAIC) and 1,551 for State Farm Fire and Casualty Company (SFF&CC), totaling 4,459. From each Company, a sample of 25 Litigated claims was selected. There were no exceptions noted. Fire (Property) Lines-Litigated Claims For the examination period of January 1, 2014 through June 30, 2015, there were 53 Litigated claims involving the State Farm Fire and Casualty Company (SFF&CC). A sample of 41 Litigated claims was selected. There were no exceptions noted.


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DENIED CLAIMS The Companies do not log denied claims as a separate entry, rather, they are included in the Closed Without Payment category. The examiners applied analytics to the Closed Without Payment claims population in an attempt to get a population of claims that could possibly have been denied, either in whole or in part. Private Passenger Automobile The examiners applied analytics to the Closed Without Payment claims population and determined there were 8,818 Possibly Denied claims for the for State Farm Mutual Automobile Insurance Company (SFMAIC) and 951 for State Farm Fire and Casualty Company (SFF&CC), totaling 9,769. From each Company, a sample of 109 Possibly Denied claims were selected, totaling 218 claims. 1 Exception. 18 Del. Admin. Code 902. Prohibited Unfair Claim Settlement Practices. 1.2.1.5 Failing to affirm or deny coverage or a claim or advise the person presenting the claim, in writing, or other proper legal manner, of the reason for the inability to do so, within 30 days after proof of loss statements have been received by the insurer. The Company failed to send the claimant a Personal Injury Protection (PIP) kit. The Company subsequently re-opened the claim and contacted the claimant regarding a possible PIP Claim. Recommendation: The Company must ensure necessary claims information is sent to all insureds in a timely manner. Fire (Property) Lines The examiners applied analytics to the Closed Without Payment claims population and determined there were 305 for State Farm Fire and Casualty Company (SFF&CC). A sample of 77 Possibly Denied claims were selected. No exceptions were noted.


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CONCLUSION The recommendations below identify corrective measures the Department finds necessary as a result of the concerns and exceptions noted in the Report. Location in the Report is referenced in parenthesis. Recommendation: The Company should actively work to ensure they meet the DEDOI expectations for providing substantive responses to complaint inquiries. Company responses should be provided in written form on Company letterhead. Formal written responses should be provided in accordance with DE DOI requirements. (Complaint Handling) Recommendation: The Company must review its electronic appointment procedures to ensure complete, timely and accurate data is provided to the DDOI in compliance with 18 Del. C. §1715. (Producer Licensing) Recommendation: The Company must ensure all policies are correctly coded so rates are appropriate for the accepted risk. (Underwriting and Rating) Recommendation: The Company must ensure their programs are adequately updated to ensure the proper language is included in cancellation notices. (Underwriting and Rating)

Recommendation: The Company must review its claim handling procedures to ensure liability decisions are made within 30 days after proof of loss statements have been received by the insurer, in compliance with 18 Del. Admin. Code 902 § 1.2.1.5 & 18 Del. C. §2304 (16). (Claims) Recommendation: The Company must review its arbitration response procedures to ensure they are properly followed. in compliance with 18 Del. Admin. Code 902 § 1.2.1.2 & 5 & 18 Del. C. §2304 (16). (Claims) Recommendation: The Company must review its claims handling procedures to ensure the follow-up process is properly followed in compliance with 18 Del. Admin. Code 902 § 1.2.1.2 & 18 Del. C. §2304 (16). (Claims) Recommendation: The Company must acknowledge policyholder communication in a timely manner. 18 Del. C. § 2304(b) (Claims) Recommendation: The Company must review claims procedures to ensure follow-up correspondence is sent to insureds in a timely manner. (Claims) Recommendation: The Company must ensure decision letters are sent in a timely manner. (Claims) Recommendation: The Company must ensure necessary claims information is sent to all insureds in a timely manner. (Claims)


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The examination conducted by Shelly Schuman, Mark Plesha, Linda Armstrong, Jason Nemes and Jack Rucidlo is respectfully submitted.

Mark Plesha, CPCU, AIE, MCM, CWCP, AIS, IR Examiner-in-Charge Market Conduct Delaware Department of Insurance

delaware department of insurance market conduct … · prohibited unfair claim settlement...

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