DELAWARE DEPARTMENT OF INSURANCE MARKET CONDUCT EXAMINATION REPORT GEICO GENERAL INSURANCE COMPANY

Transcription

1 DELAWARE DEPARTMENT OF INSURANCE MARKET CONDUCT EXAMINATION REPORT GEICO GENERAL INSURANCE COMPANY NAIC # Western Avenue Chevy Chase, Maryland As of December 31, 2012

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4 Table of Contents EXECUTIVE SUMMARY... 2 SCOPE OF EXAMINATION... 3 METHODOLOGY... 3 COMPANY HISTORY... 4 CONSUMER COMPLAINTS... 4 CLAIMS... 6 CONCLUSION... 9 i

5 Honorable Karen Weldin Stewart CIR-ML Insurance Commissioner State of Delaware 841 Silver Lake Boulevard Dover, Delaware Dear Commissioner Stewart: In compliance with the instructions contained in Certificate of Examination Authority Number , and pursuant to statutory provisions including 18 Del. CODE , a market conduct examination has been conducted of the affairs and practices of: GEICO General Insurance Company The examination was performed as of December 31, GEICO General Insurance Company, hereinafter referred to as the "Company" or as "GEICO," was incorporated under the laws of Maryland. 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: One GEICO Blvd. Fredericksburg, Virginia The off-site examination phase was performed at the offices of the Delaware Department of Insurance, hereinafter referred to as the "Department" or "DDOI, or other suitable locations. The report of examination herein is respectfully submitted.

6 EXECUTIVE SUMMARY GEICO General Insurance Company is domiciled in Maryland and is licensed to write automobile insurance in all 50 states and the District of Columbia. The Company s main administrative offices are located in Fredericksburg, Virginia. In the 2012 Annual Statement filed with the Department, GEICO reported total individual private passenger automobile premium written for all states (except Hawaii, Michigan, New Jersey, North Carolina and South Carolina) of $6,602,146,993, of which $40,127,287 was written in Delaware. The examination focused on the Company s private passenger automobile business in the following areas of operation: Company Operations and Management; Complaint Handling and Claims. This examination was part of a series of examinations to review the use of independent medical examination, peer review organizations, as well as arbitration and surcharges, after an at-fault accident. The following exceptions were noted in the areas of operation reviewed: Complaint Handling: 3 Exceptions 18 Del. CODE 2304 Unfair methods of competition and unfair or deceptive acts or practices defined. - For failing to include complaints within the complaint log. Complaint Handling: 1 Exception 18 Del. Admin Code 902 Prohibited Unfair Claim Settlement Practices. - For failing to timely acknowledge and respond within 15 working days to the policyholder. Claims (Independent Medical Examinations): 3 Exceptions 18 Del. CODE 320. Conduct of examination; access to records; correction. - For failing to make freely available documents of the Independent Medical Examination results. Claims (Surcharges): 26 Exceptions 18 Del. Admin. Code 609 Limitations on Automobile Surcharges in Voluntary Markets and Assigned Risk Plan Exceptions for failing to fairly and accurately disclose the rationale for the surcharge amount, and failing to correctly disclose all accidents attributable to the consumer s surcharge amount. - 9 Exceptions for assessed surcharges which exceed the losses paid by the Company. The examiners also note a concern regarding the impact of a second accident after the first accident has been forgiven. The Company s practice is to provide the policyholder a notification letter that shows accident points based on one accident. The Declaration page for these same files shows the number class and does not list all accidents. The notification letters do not fairly and accurately reflect the actual number 2

7 of accidents used as the basis for computing the surcharge imposed by the Company because the Company s algorithms for assessing surcharges take both accidents into account, even though the first accident was listed as forgiven. While the issue does not rise to the level of a statutory violation, it is an area of concern. SCOPE OF EXAMINATION The Market Conduct Examination was conducted pursuant to the authority granted by 18 Del. CODE and covered the experience period of January 1, 2011 through December 31, This examination was part of a series of examinations conducted to review the use of independent medical examiners, peer review organizations, arbitration and surcharges after an at-fault accident. The examination was a target market conduct examination of the Company s private passenger automobile business in the following areas of operation: Company Operations and Management; Complaint Handling, and Claims. METHODOLOGY This examination was performed in accordance with Market Regulation standards established by the Department and examination procedures suggested by the NAIC. While examiners report on errors found in individual files, the examiners also focus 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. s generally note only those items to which the 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 numbers with citation to each section of law violated. Additional information was requested to clarify apparent violations. An exit conference was conducted with Company officials to discuss the various types of exceptions identified during the examination and review written summaries provided on the exceptions found. 3

8 COMPANY HISTORY GEICO General Insurance Company is a property and casualty domestic stock company that is domesticated, organized, and authorized under the laws of the state of Maryland. GEICO General s financial control was acquired on March 31, 1982, by Government Employees Insurance Company, a Maryland corporation. In turn, Government Employees Insurance Company is a wholly-owned subsidiary of GEICO Corporation, a Delaware corporation, which had also purchased the Equitable Life Assurance Society of the United States, a New York corporation. During 1983, the Company discontinued writing homeowners lines and its existing book of that business was renewed by its parent company, Government Employees Insurance Company. On June 22, 1989, pursuant to Article 48A, Section 249A, Annotated Code of Maryland, the Company transferred its domicile from the State of Iowa to the State of Maryland. Under Maryland law, the State of Maryland granted the Company a charter, issued nunc pro tunc. On January 2, 1996, GEICO Corporation, previously a publicly held company, became an indirect wholly-owned subsidiary of Berkshire Hathaway Inc., a Delaware corporation. Previously, GEICO General Insurance Company was incorporated on March 27, 1978, under the temporary title Equi-Gen Insurance Company, under the laws of the State of Iowa, to act as the vehicle for the transfer of the corporate domicile of the Equitable General Insurance Company from Fort Worth, Texas, to Des Moines, Iowa, effective December 31, The title of the Company was changed to Houston Casualty Company on April 9, 1935; to Houston Fire and Casualty Insurance Company in 1936 and to Houston General Insurance Company on December 31, The title changed again on June 1, 1975, to Equitable General Insurance Company. Formerly known as Equi-Gen Insurance, the Company changed its name to GEICO General Insurance Company, Inc. in September, The Company markets and underwrites personal lines products (predominantly private passenger auto) in the United States. From 1983 through 1987, primarily through direct response marketing techniques, the Company wrote automobile insurance for individuals (excluding military personnel) who did not meet Government Employees preferred risk underwriting standards. Since 1987, the Company has increased the scope of its coverage to provide automobile insurance for preferred risk individuals who are not government employees or military personnel. All marketing is generated through 20 vendors. The personal automobile business is primarily preferred risk, with drivers having no recent accidents and limited moving violations. The home office is located in Washington, D.C. and claim offices are located in Fredericksburg, Virginia. CONSUMER COMPLAINTS The Company identified 24 consumer complaints received during the experience period. All 24 complaint files were reviewed. The company also provided a complaint log. The complaint log was reviewed for compliance with 18 Del. C (17). This Section of the Code requires maintenance of a complete record of all complaints received 4

9 since the date of its last examination. Written complaint files involving claims were also reviewed for compliance with 18 Del. Admin. Code The following violations were noted. 3 Exceptions - 18 Del. C Unfair methods of competition and unfair or deceptive acts or practices defined. (17) Failure to maintain complaint handling procedures.--failure of any person to maintain a complete record of all the complaints which it has received since the date of its last examination as otherwise required in this title. This record shall indicate the total number of complaints, their classification by line of insurance, the nature of each complaint, the disposition of these complaints and the time it took to process each complaint. For purposes of this subsection, complaint shall mean any written communication primarily expressing a grievance. The Company was instructed to provide a list of all complaints filed with the Company during the examination period. The list was to include complaints received from the Delaware Department of Insurance, as well as complaints made directly to the Company on behalf of Delaware consumers. The examiners discovered three complaint files that were filed with the Delaware Department of Insurance, but not included or reported within the Company s complaint log. Pursuant to 18 Del.C. 2304(17) the Company failed to maintain a complete record of all the complaints which it has received since the date of its last examination. Recommendation: It is recommended that the Company maintain a complete record of all complaints which it has received since the date of its last examination, as otherwise required in this title. 1 Exception - 18 Del. Admin 902 Prohibited Unfair Claim Settlement Practices Failing to acknowledge and respond within 15 working days, upon receipt by the insurer, to communications with respect to claims by insureds arising under insurance policies. The examiners noted one instance in which the Company failed to communicate to the insured within a timely manner. The Company received the complaint on October 31, 2011, but did not respond until December 5, 2011 which exceeds the 15 working days. The Company states that they attempted to reach the party by telephone. The Company paid this claim on January 24, As a result of the Company s untimeliness with this claim, the Company is considered in violation of 18 Del. Admin. 902( ). regulations. Recommendation: It is recommended that the Company acknowledge and respond within 15 working days, upon receipt of a claim, pursuant to the above regulation. 5

10 CLAIMS Independent Medical Examinations (IME) The Company provided all claims related procedures, reference materials, newsletters, bulletins, etc. regularly sent to claim adjusters in use in Delaware during the examination period. Procedures were also provided that related to Independent Medical Examiners. In addition, the Company provided a listing of all private passenger auto claims with a claim component related to bodily injury (BI, UM, UIM, PIP, Med-Pay). The listing identified claims with IME reviews. The Company utilizes CorVel as a referral service in the scheduling of IME's. A selection is made from the CorVel network of available physicians, based on location and type of physician requested. The Company does not have a contract with CorVel. However, upon receipt of an IME report, the Company pays CorVel directly for the services rendered. There were a total of 122 Bodily Injury Claims resulting in IMEs. Of the 122 IME claims, 75 were selected for review. The following violations were noted. 3 Exceptions-18 Del. C. 320 Conduct of Examinations, Correction of Records (c) Every person being examined, the person's officers, attorneys, employees, agents and representatives, shall make freely available to the Commissioner, or the Commissioner's examiners, the accounts, records, documents, files, information, assets and matters of such person, in the person's possession or control, relating to the subject of the examination and shall facilitate the examination. There were three instances in which the IME documentation was missing from the file. Once an IME is conducted, the Company is required to send a copy of the IME report, along with a letter of explanation, to the claimant. In three instances, the Company failed to provide requisite documentation evidencing that the letter and report were sent. Recommendation: It is recommended that the Company maintain documentation of accounts, records, documents, and files in accordance with the regulation. Peer Review Organizations The Company did not utilize a Peer Review Organization during the examination period. 6

11 Arbitration The Company provided a listing of 442 arbitration files that related to private passenger auto claims during the examination period, each of which a claim component related to bodily injury (BI, UM, UIM, PIP, Med-Pay). Of the 442 arbitration files a sample of 85 files were reviewed to determine the outcome of arbitration (arbitration found in favor of claimant, arbitration found in favor of company, arbitration resulting in compromise settlement). There were no exceptions noted. Surcharges The Company provided a copy of the surcharge plan in use during the examination period. The Company also provided copies of surcharge algorithms and a listing of policies for which surcharges were added after a claim. The examiners were unable to verify that the section of the plan pertaining to Rule 4 of the. Good Driver Plan, shown on pages 9 through 14 of the plan, was approved by the Department. The Company failed to provide sufficient evidence to support a finding that the filing, in its entirety, was approved by the Department. The Company identified a universe of 286 policies, all of which included instances where surcharges were added after an at-fault claim. A sample of 76 policies was selected for review. The following violations were noted: 17 Exceptions - 18 Del. Admin 609 Limitations on Automobile Surcharges in Voluntary Markets and the Assigned Risk Plan No surcharge may be imposed unless the named insured is notified at least ten days in advance of the effective date of the surcharge, of the amount of the surcharge and the reasons for the imposition of the surcharge. No surcharge may be instituted against a policyholder except at the time of renewal or policy issuance unless a new insured under the policy is added during the policy term and the new insured is surchargeable under the insurer's filed and approved surcharge plan. Notice of imposition of a surcharge may be included with the renewal offer. This subsection does not apply to new business. The Company s surcharge notification does not disclose the correct or accurate rationale for calculating the surcharged amount. Instances were noted in which the notification letter sent to the insured did not disclose the number of all the accidents which served as the rationale of basis for calculating the resulting surcharge. Other instances were noted 7

12 in which the Declaration page did not disclose the number of accidents that ultimately resulted in the surcharged amount. Rather, the Declaration page showed a number class, to indicate the accidents attributable to the policyholder for purposes of calculating the surcharge. Documentation sent to the insured, in the form of a notification letter and/or a Declaration page, failed to accurately reflect the number of accidents for which the insured was being surcharged. In each of these instances, the documentation showed one accident attributable to the insured, while at the same time, calculations based on the rate schedule to determine the surcharged amount attributed two accidents to the insured. This inconsistency is a source of confusion for the policyholder. Recommendation: It is recommended that the Company fully disclose all accidents which serve as the basis for calculating the surcharged amount, pursuant to 18 Del. Admin Code Exceptions - 18 Del. Admin 609 Limitations on Automobile Surcharges in Voluntary Markets and the Assigned Risk Plan No surcharge may be imposed for the first at-fault accident during any three year period which exceeds pro rata over a three year period the amount of the claim paid or reserved by the insurer. The amount of the claim shall be net of any deductible amounts assumed by the insured. Each insurer shall file a surcharge plan with the Department which in all but exceptional cases will comply with this subparagraph. An insured may question the amount of the surcharge whereupon a decision by the Department of Insurance shall be rendered within fifteen (15) business days after receiving the inquiry. In rendering its decision, the Department shall consult with the insurer to confirm the amount of the claim and the amount of the surcharge related thereto. If, after such review, the Department finds that the insurer's surcharge exceeds the standard required by this subsection, the Department may order the insurer to adjust the surcharge amount consistent with this subsection. The nine surcharge files were noted as having surcharges which exceeded the losses paid by the Company. Recommendation: It is recommended that the Company s surcharge amounts do not exceed the amount of loss paid by the Company. 8

13 CONCLUSION The recommendations made below identify corrective measures the Department finds necessary as a result of the exceptions noted in the Report. Location in the Report is referenced in parenthesis. 1. It is recommended the Company include all complaints within its complaint log, pursuant to 18 Del. Code 2304 (Complaints). 2. It is recommended the Company acknowledge and respond within 15 working days, upon receipt by the insurer, to communication with respect to claims by insured arising under insurance policies, pursuant to 18 Del. Admin 902 (Complaints). 3. It is recommended the Company include documentation verifying that a letter explaining the results of the IME was sent to the patient, pursuant to 18 Del. Code 320 (Claims IME) 4. It is recommended the Company provide the precise number of accidents for which the policyholder is being surcharged, on both, the notification letter and the declaration page, pursuant to 18 Del. Admin (Claims Surcharges). 5. It is recommended the Company does not surcharge in excess of the amount of the loss paid by the Company, pursuant to 18 Del. Admin (Claims Surcharges). The examination conducted by Shelly Schuman, Gwendolyn Douglas, Stephen Misenheimer and Linda Armstrong is respectfully submitted. Gwendolyn J. Douglas, MCM, CIE, CFE, CFE (Fraud) Examiner-in-Charge Market Conduct Delaware Department of Insurance 9