How To Check If A Company Is In Compliance With The Law

Transcription

1 LIBERTY INSURANCE CORPORATION (42404) LIBERTY MUTUAL FIRE INSURANCE COMPANY (23035) LIBERTY MUTUAL INSURANCE COMPANY (23043) 175 Berkeley Street Mail Stop 3E Boston, MA EXAMINATION DATE: SEPTEMBER 10, 2001 EXAMINATION PERIOD: JULY 1, 2000 THROUGH JUNE 30, 2001 BY: MARKET CONDUCT EXAMINERS OF THE MARYLAND INSURANCE ADMINISTRATION

2 TABLE OF CONTENTS PAGE I. EXECUTIVE SUMMARY... 1 II. SCOPE OF EXAMINATION... 2 III. COMPANY PROFILE... 4 IV. CERTIFICATE OF AUTHORITY... 5 V. UNDERWRITING/RATING A. Homeowner Business... 6 Issue A Ins (d)(1) and Homeowner New Business Issuance of a policy using incorrect rating information to develop the policy premium, resulting in an undercharge in premium Homeowner Renewal Business Renewal of policies using incorrect rating information to develop the policy premium, resulting in an undercharge in premiums Issue B Ins Homeowner Renewal Business Failure to offer Home Day Care coverage to renewal business policyholders B. Private Passenger Automobile Business... 9 VI. SUMMARY OF RECOMMENDATIONS VII. CLOSING VIII. EXAMINATION REPORT SUBMISSION Exhibits... 13

3 PARRIS N. GLENDENING GOVERNOR STEVEN B. LARSEN COMMISSIONER KATHLEEN KENNEDY TOWNSEND LIEUTENANT GOVERNOR DONNA B. IMHOFF DEPUTY COMMISSIONER State of Maryland MARYLAND INSURANCE ADMINISTRATION 525 St. Paul Place, Baltimore, Maryland Writer s Direct Dial: Facsimile Number: dewen@mdinsurance.state.md.us ROBERT BECKER ASSOCIATE COMMISSIONER PROPERTY & CASUALTY The Honorable Steven B. Larsen Commissioner of Insurance State of Maryland 525 St. Paul Place Baltimore, Maryland Dear Commissioner Larsen: Pursuant to your instructions and authorization, a target examination has been made of the market conduct affairs of the LIBERTY MUTUAL FIRE INSURANCE COMPANY LIBERTY INSURANCE CORPORATION LIBERTY MUTUAL INSURANCE COMPANY whose home office is located at 175 Berkeley Street, Boston, MA The report of such Examination is being respectfully submitted. Sincerely, Signatures on file with original Dudley B. Ewen, A.I.E., Chief Examiner Property & Casualty Market Conduct Section

4 I. EXECUTIVE SUMMARY The Maryland Insurance Administration (hereinafter referred to as "MIA") conducted a target examination of Liberty Mutual Fire Insurance Company ("LMFIC"), Liberty Insurance Corporation ("LIC") and Liberty Mutual Insurance Company ("LMIC") (hereinafter collectively referred to as Companies ), based upon the direction of Insurance Commissioner Larsen. The lines of business reviewed were homeowner and private passenger automobile. The focus of the examination was a review of mandatory coverage offerings and requirements, as they relate to new and renewal business risks. The key component of the examination was a review of the Companies underwriting and rating practices, as they relate to the homeowner and private passenger automobile lines of business, per Sections (...For family day care providers), (Coverage for water damage), (Liability coverage for family day care providers), (Collision coverage), (Statement of rate classifications) and (Notice of effect of failure to renew or replace motor vehicle insurance) of the Insurance Article. The results of the review indicate that the Companies are not consistently adhering to their filed rates in developing the policy premium for water damage coverage, in violation of Sections (d)(1) and of the Insurance Article. The review also indicates that the Companies do not offer home day care coverage at renewal to their homeowner business policyholders, in violation of Section of the Insurance Article. The following chart reflects the sections reviewed, sample sizes reviewed and violations noted during the examination period. SECTIONS REVIEWED SAMPLE SIZE REVIEWED VIOLATIONS NOTED HOMEOWNER NEW BUSINESS 50 1 HOMEOWNER RENEWAL BUSINESS AUTOMOBILE NEW BUSINESS 50 0 AUTOMOBILE RENEWAL BUSINESS AUTOMOBILE NON-PAYMENT 50 0 CANCELLATION TOTALS

5 II. SCOPE OF EXAMINATION A target Market Conduct Examination has been performed on the Companies at their office in Williamsport, Pennsylvania and a report thereon is submitted as follows: The Examination was conducted pursuant to Sections 2-205, 2-207, and of the Insurance Article and generally covered the period from July 1, 2000 through June 30, The purpose of the review was to determine if the Companies are complying with mandatory coverage offerings and requirements, as they relate to the homeowner and private passenger automobile lines of business, per Sections , , , , and of the Insurance Article. To accomplish this task, the Companies were requested to provide written procedures explaining how they comply with the mandatory coverage offerings and requirements for , , , , , In addition, the Companies provided all policy forms, underwriting guidelines, rate manuals, rate filings, applications and directives/bulletins issued to agents. Moreover, the Companies were requested to provide and explain their procedures for the inclusion of policy forms (mandatory/optional) and endorsements, mailed with new and renewal business policies. These forms, endorsements, and other related materials, such as policy contracts, declaration pages and inserts are referred to as policyholder flat packages ; generated and collated based on computerized programmed instructions at the Companies Dover, NH Publishing Factory. Similar packages, are generated based on manual transactions, misquoted policies, program limitations, etc., in the Companies Operations Department in Williamsport, Pa. Furthermore, the Companies were requested to provide in sequential order, the workflow processes of all Company personnel, units (sales, underwriting, production, etc.) or systems (electronic or manual) involved in the workflow process, required to implement the ultimate dissemination of mandatory coverage offerings, statements and forms to policyholders. Subsequently, certain selected policies were tracked, based on the aforementioned procedures and processes by observing, inquiring with Company personnel and reviewing firsthand, the Companies Operation Department in Williamsport, PA and the Publishing Factory in Dover, NH. Likewise, selected local Maryland Sales Offices were visited in Severna Park, MD, Towson, MD, Bel Air, MD and Hunt Valley, MD; where agents were observed firsthand in telephone discussions with potential applicant or providing service to existing policyholders.

6 The procedure and workflow review revealed that the Companies adhere to their stated practices. The file review was based on a review of four hundred (400) files, including three hundred fifty (350) new and renewal business and fifty (50) automobile non-payment cancellations. All unacceptable or noncomplying practices may not have been discovered. Failure to identify or criticize improper business practices does not constitute acceptance of such practices. Examination report recommendations that do not reference specific insurance laws, regulations, or bulletins, are presented to improve the Companies practices and ensure consumer protection.

7 III. COMPANY PROFILE Liberty Insurance Corporation was incorporated under the laws of Vermont on October 21, It began business on December 15, 1988 when it merged with Liberty Insurance Corporation, a Delaware corporation, incorporated in 1983, and assumed all of its business. Liberty Mutual Fire Insurance Company was incorporated October 31, 1908 under the laws of Massachusetts as the United Druggists Mutual Fire Insurance Company. The word Druggists was deleted from its title in The present name was adopted on December 15, Liberty Mutual Insurance Company was incorporated under the laws of Massachusetts January 1, 1912 and began business July 1, The present title was adopted August 15, A.M. Best assigns each company a Financial Size Category. Best's Financial Size Category is based on reported policyholders' surplus plus conditional or technical reserve funds, such as mandatory securities valuation reserve, other investment and operating contingency funds and miscellaneous voluntary reserves reported as liabilities. The Financial Size Category is represented by Roman numerals ranging from Class I (the smallest) to Class XV (the largest). The Financial Size Category for the Companies is XV.

8 IV. CERTIFICATE OF AUTHORITY The Companies Certificates of Authority to transact property and casualty insurance business in the State of Maryland were last issued on July 1, Liberty Insurance Corporation is licensed in DC, U.S Virgin Islands and all states. Liberty Mutual Fire Insurance Company is licensed in DC and all states. It is also licensed in all provinces of Canada. Liberty Mutual Insurance Company is licensed DC, Puerto Rico, U.S Virgin Islands and all states. It is also licensed in all provinces of Canada.

9 V. UNDERWRITING/RATING A. Homeowner Business The Companies provided the MIA with the total population of all homeowner policies initiated as new and renewal business by the Companies during the examination period. The total population was twenty-one thousand five hundred thirty-seven (21,537). The population included two thousand two hundred sixty-one (2,261) policies issued as new business and nineteen thousand two hundred seventy-six (19,276) policies issued as renewal business for LMFIC. The MIA, in order to determine if the Companies are in compliance with the MIA's insurance laws and regulations, reviewed a total of one hundred fifty (150) homeowner new and renewal business policies. The review revealed a total of one hundred nine (109) exceptions detailed on the following pages.

10 Issue A -- Violation of Sections (d)(1) and Issuance or renewal of policies upon application of an inappropriate rate resulting in an undercharge of premium applicable to water and sewer coverage. Section (d)(1) provides: (d) Unfair discrimination - (1) An insurer may not make or allow unfair discrimination between insureds or properties having like insuring or risk characteristics in: (i) the premium or rates charged for insurance; (ii) the dividends or other benefits payable on the insurance; or (iii) any of the other terms or conditions of the insurance. Section provides: An insurer may not make or issue an insurance contract or policy of insurance of a kind to which this subtitle applies, except in accordance with the filings that are in effect for the insurer as provided in this subtitle. The Companies Rate and Rule Revision (SR) provides in pertinent part: In accordance with the File and Use statutory and regulatory provisions, will revise their Homeowners Rating Manual for all policies produced and effective on or after December 18, The review revealed that the Companies, in an unfairly discriminatory manner, issued or renewed ten (10) policies by applying a rate for water and sewer backup coverage lower than that required by the Companies rate filing, in violation of Sections (d)(1) and of the Insurance Article detailed as follows: SECTION POPULATION/COMPANY No. OF POLICIES REVIEWED Homeowner New Business Homeowner Renewal Business Recommendation #1 No. OF POLICIES CHARGED A LOWER PREMIUM THAN FILED RATE EXHIBIT 2,261/LMFIC 50 1 A 19,276/LMFIC B Within 30 days, the Companies should demonstrate why they should not be considered in violation of the requirements set forth in Sections (d)(1) and of the Insurance Article. In the event the Companies are unable to provide such documentation, they should demonstrate that procedures have been put in place to assure compliance with their rate filings and Maryland insurance laws and regulations.

11 Issue B -- Violation of Section Failure to offer Home Day Care coverage to renewal business policyholders. Section provides in pertinent part: An insurer that issues or delivers a policy or contract of homeowner s liability insurance in the State shall offer to provide to a policyholder, who is registered as a family day care provider The Companies advised that they do not interpret (Liability coverage for family day care providers) to require continuous renewal offers to renewal customers. Therefore, no written offer is made on the renewal book of business. In addition, the Companies advised Because we make coverage available at new business and renewal, we believe we are meeting the requirements of the statute. The review revealed that the Companies did not offer home day care coverage for ninety-nine (99) Homeowner renewal business policyholders in violation of Section of the Insurance Article, detailed as follows: SECTION POPULATION/COMPANY No. OF POLICIES REVIEWED Homeowner 19,276/LMFIC 100 Renewal Business No. OF POLICIES NOT EXHIBIT OFFERED HOME DAY CARE COVERAGE AT RENEWAL 99* C Recommendation #2 Within 30 days, the Companies should demonstrate why, in addition to the ninety-nine (99) cited violations, the entire population should not be considered in violation of the requirements set forth in Section of the Insurance Article. In addition, the Companies should demonstrate that procedures have been put in place to offer Home Day Care at renewal to their policyholders to assure compliance with Maryland insurance laws and regulations. *One (1) policy continues to renew with home day care coverage, as the risk was previously endorsed to provide home day care coverage.

12 B. Private Passenger Automobile Business The Companies provided the MIA with the total population of private passenger automobile policies initiated as new and renewal business, as well as those policies cancelled for non-payment of premium, by the Companies during the examination period. The total population was twenty-eight thousand two hundred ninety- eight (28,298). The populated included two thousand four hundred twenty-nine (2,429) policies issued as new business, including one thousand seven hundred six-nine (1,769) for LMFIC and six hundred sixty (660) for LMIC. Twenty-four thousand seven hundred sixty-three (24,763) policies issued as renewal business, including twenty-three thousand eight hundred sixty-five (23,865) policies for LMFIC and eight hundred ninetyeight (898) for LMIC. The combined LMFIC and LMIC population for non-payment of premium cancellation was one thousand six (1,106). The MIA, in order to determine if the Companies are in compliance with the MIA's insurance laws and regulations, reviewed a total of two hundred fifty (250) automobile new and renewal business policies and fifty (50) non-payment of premium cancellations. The review did not reveal any violations of the applicable sections of the Insurance Article.

13 VI. SUMMARY OF RECOMMENDATIONS ISSUE VIOLATION RECOMMENDATION NUMBER PAGE NUMBER A Sections (d)(1) and of the 1 7 Insurance Article. B Section of the Insurance Article. 2 9

14 VII. CLOSING A total of four hundred (400) files were reviewed. The files reviewed included three hundred (350) randomly selected homeowner and private passenger automobile new and renewal business policies, and fifty (50) private passenger automobile policies cancelled for non-payment of premium. A total of one hundred nine (109) violations are noted herein.

15 VIII. EXAMINATION REPORT SUBMISSION The courtesy and cooperation extended by the Officers and Employees of the Companies during the course of the Examination is hereby acknowledged. _ Signatures on file with original Dudley B. Ewen, A.I.E., Chief Examiner P&C Market Conduct Section In addition, the following individuals participated in this examination and in the preparation of this Report. William R. Leach Assistant Chief Examiner Property and Casualty Market Conduct Section Donald Owens Senior Market Conduct Examiner Property and Casualty Market Conduct Section Valerie Turner Market Conduct Examiner Property and Casualty Market Conduct Section Andre Ham Market Conduct Examiner Property and Casualty Market Conduct Section William H. Harris Contractual Market Conduct Examiner Property and Casualty Market Conduct Section Dawna Ruley Administrative Assistant Property and Casualty Section

16 EXHIBITS* *Attachments and exhibits named in this file may be available with a written request addressed to the Public Information Act Coordinator.

17 Exhibit A HOMEOWNER NEW BUSINESS INCORRECT PREMIUM DETERMINATION FOR WATER BACKUP COVERAGE. SAMPLE # EFFECTIVE CORRECT COMPANY DIFFERENCE DATE PREMIUM PREMIUM 12 12/27/00 $35.00 $50.00 $15.00 COUNT: 1

18 Exhibit B HOMEOWNER RENEWAL BUSINESS INCORRECT PREMIUM DETERMINATION FOR WATER BACKUP COVERAGE. SAMPLE # RENEWAL COMPANY CORRECT DIFFERENCE DATE PREMIUM PREMIUM 3 12/30/00 $35.00 $50.00 $ /22/00 $35.00 $50.00 $ /27/00 $35.00 $50.00 $ * 12/31/00 $33.00 $47.00 $ /30/01 $35.00 $50.00 $ /02/01 $35.00 $50.00 $ /29/00 $35.00 $50.00 $ /06/01 $35.00 $50.00 $ /19/01 $35.00 $50.00 $15.00 Count: 9 (*) Premium reflects a Group Savings Plus discount for mass-market accounts.

19 Exhibit C HOMEOWNER RENEWAL BUSINESS FAILURE TO OFFER HOME DAY CARE COVERAGE TO RENEWAL BUSINESS POLICYHOLDERS SAMPLE # RENEWAL DATE 1 11/16/ /30/ /30/ /20/ /29/ /31/ /28/ /24/ /28/ /05/ /08/ /09/ /22/ /12/ /07/ /24/ /23/ /31/ /24/ /26/ /07/ /22/ /27/ /20/ /28/ /15/ /26/ /29/ /31/ /04/ /28/ /27/ /18/ /01/ /31/ /01/ /30/ /27/ /06/01

20 SAMPLE # RENEWAL DATE 40 01/29/ /17/ /29/ /26/ /25/ /27/ /26/ /07/ /30/ /07/ /22/ /14/ /23/ /25/ /17/ /26/ /13/ /31/ /11/ /18/ /01/ /01/ /21/ /29/ /03/ /15/ /08/ /10/ /27/ /30/ /08/ /13/ /27/ /02/ /29/ /29/ /13/ /16/ /23/ /01/00

21 SAMPLE # RENEWAL DATE 80 05/08/ /06/ /14/ /14/ /28/ /04/ /18/ /21/ /19/ /20/ /28/ /12/ /30/ /06/ /19/ /26/ /22/ /12/ /25/ /25/01

22 IN THE MATTER OF THE * BEFORE THE STATE OF MARYLAND * INSURANCE ADMINISTRATION * INSURANCE ADMINISTRATION * v. * * LIBERTY INSURANCE CORPORATION * * LIBERTY MUTUAL FIRE INSURANCE * COMPANY * * LIBERTY MUTUAL INSURANCE * COMPANY * CASE NO. MIA /02 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * ORDER - CONSENT AGREEMENT WHEREAS, the State of Maryland, Insurance Administration (hereinafter "Insurance Administration"), conducted a Market Conduct Examination of Liberty Insurance Corporation, Liberty Mutual Fire Insurance Company and Liberty Mutual Insurance Company (hereinafter "Respondent"), whose home office is located at 175 Berkeley Street, Boston, MA 02117, pursuant to the Insurance Article, of the Annotated Code of Maryland; and WHEREAS, such examination disclosed violations of , , and (d)(1) of the Insurance Article; and WHEREAS, the Respondent did promptly and voluntarily take corrective measures pursuant to recommendations of the Insurance Administration; and

23 WHEREAS, both parties are desirous of resolving this matter presently pending before the Insurance Administration; and WHEREAS, the Insurance Administration has considered the requirements of State Government Article and COMAR in determining the scope of the penalty imposed upon Respondent in this Order/Consent Agreement. ACCORDINGLY, by the powers vested in me under the Insurance Article of the Annotated Code of Maryland, and in view of the Consent of the Respondent herein to the terms of the Order, it is hereby ORDERED that: 1. Respondent shall immediately comply with , , and (d)(1) of the Insurance Article. 2. Pursuant to 4-113(d) of the Insurance Article, the Respondent will pay an administrative penalty to the State of Maryland in the amount of twenty-five thousand two hundred forty-five dollars ($25,245.00). 3. Respondent accepts the Market Conduct Examination Report consisting of thirteen (13) pages and three (3) exhibits submitted pursuant to the Insurance Article, of the Annotated Code of Maryland. 4. This Consent Order is the Final Order of the Insurance Commissioner on this matter.

24 WITNESS the HAND and the SEAL of the Insurance Administration, this 6 th day of _August, _ Signatures on file with original Steven B. Larsen Insurance Commissioner RESPONDENT'S CONSENT Respondent hereby consents to the above Order. WITNESS the HAND and the SEAL of the Respondent this 25 th _ day of July, ATTEST: _ Signatures on file with original Liberty Insurance Corporation Liberty Mutual Fire Insurance Company Liberty Mutual Insurance Company