INSURANCE ADMINISTRATION

Transcription

1 NATIONWIDE MUTUAL INSURANCE COMPANY (NAIC # 23787) NATIONWIDE MUTUAL FIRE INSURANCE COMPANY (NAIC # 23779) NATIONWIDE GENERAL INSURANCE COMPANY (NAIC # 23760) NATIONWIDE PROPERTY & CASUALTY INSURANCE COMPANY (NAIC # 37877) COLONIAL INSURANCE COMPANY OF WISCONSIN (NAIC # 10723) One Nationwide Plaza Columbus, Ohio AS OF May 12, 1999 STATE OF MARYLAND INSURANCE ADMINISTRATION

2 PARRIS N. GLENDENING GOVERNOR KATHLEEN KENNEDY TOWNSEND LIEUTENANT GOVERNOR State of Maryland MARYLAND INSURANCE ADMINISTRATION 525 St. Paul Place, Baltimore, Maryland Writer s Direct Dial: Facsimile Number: dewen@mdinsurance.state.md.us STEVEN B. LARSEN COMMISSIONER DONNA B. IMHOFF DEPUTY COMMISSIONER ROBERT BECKER ASSOCIATE COMMISSIONER PROPERTY & CASUALTY I, Steven B. Larsen, Insurance Commissioner of the State of Maryland, do hereby certify that the annexed copy of the Market Conduct Examination of Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide General Insurance Company, Nationwide Property & Casualty Insurance Company, and Colonial Insurance Company of Wisconsin, as of May 12, 1999, whose home office is located at One Nationwide Plaza, Columbus, Ohio 43215, is a true copy of the original report, as amended, on file with the Maryland Insurance Administration and also includes a true copy of the Order/Consent Agreement issued as a result of the findings set forth therein. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of this Administration at the City of Baltimore, Maryland this 4th day of March Signature on file with original Steven B. Larsen, Insurance Commissioner

3 TABLE OF CONTENTS SECTION PAGE Salutation... 1 Foreword... 2 Scope of Examination... 3 Company Profile... 5 Certificate of Authority... 6 I. SALES AND ADVERTISING A. Sales and Advertising Materials... 7 (No Violations Cited) B. Agents Licensing Exception #1 Ins (a)(1) 2. Exception #2 Ins (a) 3. Exception #3 Ins (b)(11) C. Analysis/General Business Practice Exceptions II. UNDERWRITING A. Automobile Declinations Initiated by Companies Exception #1 Ins (b) 2. Exception #2 Ins (d)(1) and (a)(2) 3. Exception #3 1681m(a) Of Federal Fair Credit Reporting Act B. Automobile Cancellations Initiated by Companies Exception #1 Ins (b)(4)(i) 2. Exception #2 Ins (b)(1)(i) and COMAR Exception #3 Ins (a)(2) 4. Exception #4 Ins (d)(1) and (a) 5. Exception #5 Ins (b) 6. Exception #6 Ins (b)(1) 7. Exception #7 Ins (b)(3)(iii) 8. Exception #8 Ins (a) and (d)(1) C. Automobile Nonrenewals Initiated by Companies Exception #1 Ins (b)(4)(i) 2. Exception #2 Ins (b)(1)(i) and COMAR Exception #3 Ins (b)(1) 4. Exception #4 Ins (b) 5. Exception #5 Ins (d)(1) and

4 27-501(a)(2) 6. Exception #6 Ins (d)(1) and COMAR Exception #7 Ins (a)(2) D. Automobile Increase in Premiums Initiated by Companies Exception #1 Procedural Requirements of Ins and COMAR Exception #2 Ins (b)(4)(i) 3. Exception #3 Ins (d)(1) and COMAR Exception #4 Ins (b)(1) E. Homeowner Declinations Initiated by Companies Exception #1 - VII.1.m. of the Federal Consent Decree, COMAR and Ins (b) 2. Exception #2 Ins (a) and/or (b) 3. Exception #3 III.A. 7 of the Federal Consent Decree 4. Exception #4 Ins (d)(1) and (a)(1)(2) 5. Exception #5 1681m(a) of the Fair Credit Reporting Act 6. Exception #6 - III. A.6. of the Federal Consent Decree and Ins (a)(1)(2) F. Homeowner Cancellations Initiated by Companies Exception #1 Ins (a) and/or (b) 2. Exception #2 Ins (e)(1) 3. Exception #3 Ins (d)(1) 4. Exception #4 Ins (d)(1) and Section lll A.9. of the Federal Consent Decree 5. Exception #5 Ins (b) G. Homeowner Nonrenewals Initiated by Companies Exception #1 Ins (a) and/or (b) 2. Exception #2 Ins (e)(1)

5 3. Exception #3 Ins (d)(1) and Section lll A.9. of the Federal Consent Decree 4. Exception #4 Ins (b) H. Analysis/General Business Practice Exceptions III. RATING A. Automobile New Business Rating Exception #1 Ins (d)(1) and Exception #2 Ins (d)(1) and (a)(2) 3. Exception #3 Ins (b) B. Automobile Renewal Business Rating Exception #1 Ins (d)(1) and Exception #2 Ins (d)(1) and (a)(2) 3. Exception #3 Ins (b) C. Homeowner New Business Rating Exception #1 Ins (d)(1) and D. Homeowner Renewal Business Rating Exception #1 Ins (d)(1) and Exception #2 Ins (d)(1) E. Analysis/General Business Practice Exceptions Ins and IV. CLAIMS A. Automobile Total Loss Claims Exception #1 Incorrect Settlement of Claims 2. Exception #2 Ins (4), (10), COMAR A(4) and B(2) 3. Exception #3 Ins (1), (1), COMAR A(1)(b) and B(1)(b) 4. Exception #4 COMAR A(1)(d) 5. Exception #5 Ins (b) B. Automobile Uninsured Motorist Claims Exception #1 Ins (1), (1), COMAR A(1)(b) and B(1)(b) 2. Exception #2 Ins (b)(2)(i), Ins (2), (6), COMAR A(3) and B(6)and B(13) C. Automobile Denied Claims... 39

6 1. Exception #1 Ins (4), (10), COMAR A(4) and B(2) D. Homeowner Claims Exception #1 COMAR A(l)(d) E. Homeowner Denied Claims (No Violations Cited) F. Personal Injury Protection Only Claims Exception #1 Ins (b)(2)(i), (2), (6) and COMAR A(3) and B(6) and (13) 2. Exception #2 Ins (a) and (c) and COMAR Exception #3 COMAR A(1)(d) G. Analysis/General Business Practice Exceptions COMAR B(4), A and of the Transportation Article V. CONSUMER COMPLAINTS A. Complaints Exception #1 COMAR B(11) 2. Exception #2 Ins (b) B. Analysis/General Business Practice Exception VI. INTERNAL AUDITS... 48

7 PART II: AGENT REVIEW A. Maryland Automobile Insurance Fund (MAIF) Exception #1 COMAR and Ins (b) 2. Exception #2 Procedural Requirements of Ins (a)(3)(i) 3. Exception #3 Ins (d)(1) and (a) B. Joint Insurance Association (JIA) Exception #1 COMAR and Ins (b) C. Agent Sales Practice Analysis Exception #1 III.A.7 of the Federal Consent Decree and Ins (e)(1)(2) 2. Exception #2 III.A.9. of the Federal Consent Decree 3. Exception #3 Ins (b) 4. Exception #4 Ins (a)(2) and Ins (d)(1) 5. Exception #5 Ins (d)(1) D. Analysis/General Business Practice Exception Ins PART III CLOSING EXAMINATION REPORT SUBMISSION EXHIBIT... 59

8 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, an Examination has been made of the Market Conduct affairs of the Nationwide Mutual Insurance Company Nationwide Mutual Fire Insurance Company Nationwide Property and Casualty Insurance Company Nationwide General Insurance Company Colonial Insurance Company of Wisconsin whose home office is located at One Nationwide Plaza, Columbus, Ohio The Report of such Examination is being respectfully submitted. Sincerely, Robert J. Becker Associate Insurance Commissioner Property & Casualty Section Market Conduct Examinations

9 FOREWORD The Market Conduct Examination is, in general, a report by exception. Additional practices, procedures, or files subject to review may be omitted, as to reference, if no improprieties are indicated.

10 SCOPE OF EXAMINATION A Market Conduct Examination has been performed on: Nationwide Mutual Insurance Company (NMIC) Nationwide Mutual Fire Insurance Company (NMFIC) Nationwide Property and Casualty Insurance Company (NPCIC) Nationwide General Insurance Company (NGIC) Colonial Insurance Company of Wisconsin (CICW) hereinafter referred to as "Companies", whose Home Office located at One Nationwide Plaza, Columbus, Ohio 43215, and a Report thereon is submitted as follows: The examination was conducted pursuant to Section of the Insurance Article and generally covered the period from May 13, 1998 through May 12, The purpose of the examination was to determine compliance by the Companies with the Maryland Insurance Administration's (hereinafter referred to as MIA ) laws and regulations. The Examination included, but was not limited to, the following areas of the Companies operations: 1. Sales and Advertising 2. Underwriting 3. Rating 4. Claims 5. Consumer Complaints 6. Internal Audits 7. Agent Review All unacceptable or non-complying practices may not have been discovered. Failure to identify or criticize improper practices does not constitute acceptance of such practices. Examination report recommendations, which do not reference specific insurance laws, regulations, or bulletins, are presented to improve the Companies' business practices and ensure consumer protection. All files were selected by using a computer generated random sample program unless otherwise stated herein.

11 COMPANY PROFILE Nationwide Mutual Insurance Company was incorporated on December 16, 1925 under the laws of Ohio, began business April 14, 1926 under the sponsorship of the Ohio Farm Bureau Federation to provide automobile insurance for Farm Bureau members at cost. The present corporate title was adopted September 1, Nationwide Mutual Fire Insurance Company was incorporated on December 27, 1933 under the laws of Ohio, began business on April 15, Operations were under the title Farm Bureau Mutual Fire Insurance Company from inception until September 1, 1955, when the present corporate name was adopted. Nationwide General Insurance Company was incorporated on August 22, 1957 under the laws of Ohio as the Trans-America Insurance Company. It began business on September 3, The present title was adopted on April 8, Nationwide Property and Casualty Insurance Company was incorporated on November 9, 1979 under the laws of Ohio and began business July 1, Colonial Insurance Company of Wisconsin was incorporated May 1, 1934 under the laws of California. On July 15, 1997, the Company re-domesticated from California to Wisconsin. The present title of Nationwide Assurance Company was adopted on April 30, 1999.

12 CERTIFICATE OF AUTHORITY The Companies Certificates of Authority to write business in the State of Maryland were last issued on July 1, Nationwide Mutual Insurance Company is licensed in DC, Puerto Rico, U.S. Virgin Islands and all states except NJ. Nationwide Mutual Fire Insurance Company is licensed in DC, Puerto Rico, U.S. Virgin Islands and all states. Nationwide General Insurance Company is licensed in DC and all states except AK, CO, HI, MA, NC, NH, NJ, RI, WV and WY. Nationwide Property and Casualty Insurance Company is licensed in DC and all states except HI, LA, ME, NJ and WY. Colonial Insurance Company of Wisconsin is licensed in DC and all states except HI, LA, MA, MI, NC, NH, NJ and TX.

13 I. SALES AND ADVERTISING A. Sales and Advertising Materials The Companies were requested to provide all sales and advertising (electronic and paper) materials used in the State of Maryland during the examination period. This material was requested to determine compliance with Sections and pertaining to unfair and deceptive sales and advertising practices. The sales and advertising materials reviewed were in compliance with the referenced Code Sections. The Companies maintain a website but do not sell or bind coverage over the Internet.

14 B. Agents Licensing In order to determine compliance by the Companies and their agents with the licensing requirements applicable to the Insurance Article, a review of the agents and/or agencies who were listed as producers of record on policies issued by the Companies and/or received a commission for Homeowners and Automobile new and renewal business policies issued by the Companies during the examination period was compared with the licensing records of the MIA. The agents who were noted as the soliciting person on the random sample of rating files in Section lll was the population reviewed. The review revealed a total of thirteen (13) exceptions detailed as follows: Exception 1. Violation of Section10-118(a)(1) The Companies accepted business solicited by individuals acting as an agent that do not hold the proper certificate of qualification and/or appointments. A. Homeowner New Business... 3 B. Automobile New Business... 2 C. Automobile Renewal Business... 1 Subtotal 6 2. Violation of Section (a) The Companies forwarded commissions directly or indirectly to soliciting individuals acting as an agent who were not qualified agents. A. Homeowner New Business... 3 B. Automobile New Business... 2 C. Automobile Renewal Business... 1 Subtotal 6 3. Violation of Section 4-113(b)(11)... 1 As a result of the exceptions noted in Alleged Exception Category #1, Violation of Section10-118(a) and Alleged Exception Category #2, Violation of Section (a), and in accordance with C.O.M.A.R A.B., the Companies are in violation of Section 4-113(b)(11). TOTAL 13

15 C. Analysis/General Business Practice Exceptions I. The Companies were requested to provide a computer run by Company or a manual listing of appointed agents by business address/zip code with a total. The Companies initially advised the MIA that the total number of such appointed agents was two hundred sixty- seven (267). In reviewing the Companies electronic homeowner policy screens to identify the business producer, only the agent number was indicated. Another list was requested to identify the agent's name. This agent list comprised a total of two hundred ninety-three (293) agent names. There were no incorporated insurance agencies indicated on either list provided by the Companies. The automobile and homeowners policies reviewed indicated there were thirty-five (35) policies written by agents who were not included on either of the two (2) Companies agent lists but did appear on the MIA s Licensee Master Report. The Companies were advised of these discrepancies. In response, the Companies provided a third list that indicated seven hundred fifty-six (756) agent names. Section provides in part that a person shall produce and make freely available to an examiner information that relates to the subject of the examination. The Companies response dated May 22, 2001, Exhibit, Item 3, states: Nationwide previously asserted and provided supporting documentation that inconsistent direction by the exam team caused confusion as to the exact information the examiners were seeking. Regardless, the company recognizes that this may be an area in which the company can improve. Therefore, the company has developed procedures for processing Market Conduct Exam Requests for agent listings The MIA accepts the Companies plan to improve and develop procedures in this area. II. The Companies were requested to provide a computer run, by Company or a manual listing of agents terminated during the examination period with the reason for termination included. The Companies advised the MIA that the total number of such terminated agents was three (3). In review of the MIA s Licensee Master Report, there were in total sixty-five (65) terminated agents during the examination period. Therefore, it is the conclusion that the Companies again did not provide a complete list of terminated agents for the examination period as requested.

16 The Companies response dated May 22, 2001, Exhibit, Item 3 states, Nationwide previously asserted and provided supporting documentation that inconsistent direction by the exam team caused confusion as to the exact information the examiners were seeking. Regardless, the company recognizes that this may be an area in which the company can improve. Therefore, the company has developed procedures for processing Market Conduct Exam Requests for agent listings The MIA accepts the Companies plan to improve and develop procedures in this area. III. The Companies accepted business and paid commissions to a trade name entity. The Companies' response dated September 17, 1999 states in part: Most of our agents who have more than one agent will elect to use a trade name so all agents will be recognized. The entity trading as Griffin-Owens Agency did not hold a Maryland certificate of qualification or appointment with the Company as a trade name. An undated response provided by the Companies stated, They are Virginia resident agents. This agency has not filed a Trade Name Registration form with the MIA. Christian F. Griffin holds a Maryland C of Q. Donald H. Owens does not. As a result, this entity is in violation of Sections (a)(3) and Section (a)(3) provides: (a) In general--a person who applies for a certificate of qualification as an agent or broker shall: (3) file on the form and in the manner that the Commissioner provides: (i) any agency or trade name to be used by the applicant; (ii) the business address of the applicant; and (iii) the name and resident address of each individual who holds a certificate of qualification and does business under the agency or trade name... Section provides: Agents or brokers may conduct insurance business as a limited liability company, partnership, or corporation if each individual who solicits, negotiates, or accepts insurance business from the public holds a certificate of qualification in the kind or subdivision of insurance for which the individual acts as agent or broker and if applicable, an appointment from an insurer. The Companies response dated March 28, 2001, under Section I., Analysis/General Business Practice Exceptions, III states,

17 Paperwork is being submitted to the MIA so the agency may operate under the trade name of Griffin-Owens Agency IV. The Companies were requested to provide a listing of policies solicited by individuals who were found not to hold a Maryland certificate of qualification and/or the proper appointments to write business and received directly or indirectly commissions during the examination period, in violation of Sections (a)(1) and (a). A. Rae Lynn George holds a Delaware certificate of qualification but does not hold a Maryland nonresident agent certificate of qualification and appointment with the Companies. This agent works through the agency Browne & Associates, to solicit and bind Maryland business 1. The Companies response dated May 22, 2001, Exhibit, Item # 2, Attachment 4 states, A) Rae Lynn George A decision was made that she will not handle Maryland Homeowners or Automobile policies. This was an unintentional error. Training procedures have been instituted by Agent Mike Browne to prevent future compliance issues. B. Ellen M Ferris holds a Virginia certificate of qualification but does not hold a Maryland nonresident certificate of qualification. Ellen Ferris, employed by the Griffin-Owens Agency solicited Maryland business using the agent number assigned by the Companies to Christian S. Griffin. The Companies, in a response dated October 19, 1999, stated Chris should have signed the app. We cannot identify other policies written by Ellen M. Ferris. We can identify policies written by Chris Griffin. 2. The Companies response dated May 22, 2001, Exhibit, Item # 2, Attachment 4 states, B) Ellen M. Ferris Holds a Maryland Certificate of Qualification and was appointed to the Nationwide Insurance Companies effective 4/18/01. This was an unintentional error. Training procedures have been instituted by Agent Christian F. Griffin to prevent future compliance issues. 1 The Companies advised that the total number of policies produced by Michael Browne for Browne & Associates during the examination period was three hundred ninety-five (395). 2 The Companies advised that the total number of policies produced during the examination period was three thousand five hundred forty-seven (3,547).

18 C. Elaine Chervany holds a Maryland certificate of qualification but does not hold an appointment with the Companies. This agent produced business under another agent s assigned appointment number, Paul A. Martin of the Martin Insurance Agency. The Companies were asked to provide a policy listing for Elaine Chervany during the examination period. The Companies response dated September 1, 1999 stated, Since she was not appointed, there is No agent #. Policies cannot be written/processed without an agent number. On October 21, 1999, the Companies provided another response that stated, If there is no agent # a policy cannot be processed thru the computer. So a policy list cannot be generated to identify an agent without an agent #. 3 The Companies response dated May 22, 2001, Exhibit, Item # 2, Attachment 4 states, C) Elaine Chevany Holds a Maryland Certificate of Qualification and was appointed to the Nationwide Insurance Companies effective 10/20/99. This was an unintentional error. Training procedures have been instituted by Agent Paul A. Martin to prevent future compliance issues. D. Michael D. Ward s agent certificate of qualification and appointments with the Companies were canceled as of July 1, The Companies, on August 24, 1999, were requested to provide the aforementioned policy list. On August 30, 1999, the Companies provided a list of forty-eight (48) policies bound by Michael Ward. Furthermore, on September 23, 1999 the Companies provided several copies of signed applications produced by Michael Ward. The Companies response dated May 22, 2001, Exhibit, Item # 2, Attachment 4 states, D) Michael D. Ward Holds a Maryland Certificate of Qualification and was appointed to the Nationwide Insurance Companies effective 11/03/99. This was an unintentional error. Training procedures have been instituted by Sales Management to prevent future compliance issues. 3 The Companies advised that the total number of policies produced during the examination period was two thousand four hundred twenty-six (2,426).

19 II. UNDERWRITING A. Automobile Declinations Initiated By Companies The Companies were requested to provide the total population of automobile declinations initiated by the Companies during the examination period. The Companies advised the MIA that the total number of such declinations during the examination period was four hundred eighty-two (482). The population provided did not include a breakdown by company. Fifty (50) randomly selected files were reviewed. The review revealed a total of twenty-five (25) exceptions detailed as follows: Exception 1. Violation of Section 2-207(b)... 8 The Companies failed to provide complete declination files on risks to otherwise help in the examination. 2. Violation of Sections (d)(1) and (a)(2)... 6 The Companies declined applicants who appear to be within the acceptable range of the Companies' underwriting guidelines.

20 3. Violation of Section 1681m(a) of Federal Fair Credit Reporting Act 11 4 The Companies declined applicants without providing the reporting information required by law. TOTAL 25 4 The Companies response dated May 22, 2001, Exhibit, Item 5 states, Nationwide asserts the MIA is without the jurisdiction to impose fines or penalties under the FCRA. FCRA 1681m(a) provides in part: (a) Duties of users taking adverse actions on the basis of information contained in consumer reports If any person takes any adverse action with respect to any consumer report that is based in whole or in part on any information contained in a consumer report, the person shall -- (1) provide oral, written, or electronic notice of the adverse action to the consumer; (2) provide to the consumer orally, in writing, or electronically -- (A) the name, address, and telephone number of the consumer reporting agency that furnished the report to the person; and (B) a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken; and (3) provide to the consumer an oral, written; or electronic notice of the consumer s right-- (A) to obtain, under section 1681j of this title, a free copy of a consumer report on the consumer from the consumer reporting agency referred to in paragraph (2), which notice shall include an indication of the 60 day period under that section for obtaining such a copy; and (B) to dispute, under section 1681i of this title, with a consumer reporting agency the accuracy or completeness of any information in a consumer report furnished by the agency. The Companies are advised that these exceptions are presented to ensure consumer protection. Therefore, these FCRA exceptions will remain in this Report.

21 B. Automobile Cancellations Initiated By Companies The Companies were requested to provide the total population of automobile cancellations initiated by the Companies during the examination period. The Companies advised the MIA that the total number of such cancellations during the examination period was six hundred sixty-nine (669). The population included one hundred twenty-three (123) for NMIC, five (5) for NMFIC, twenty-six (26) for NGIC, one hundred fourteen (114) for NPCIC and four hundred one (401) for CICW. One hundred (100) randomly selected files were reviewed. The review revealed a total of seventy-five (75) exceptions detailed as follows: Exception 1. Violation of Section (b)(4)(i) The Companies canceled polices without providing a clear and specific reason. 2. Violation of Section (b)(1)(i) and COMAR The Companies canceled policies without mailing notices by certified mail. 3. Violation of Section (a)(2)... 6 The Companies canceled policies without providing the required offer of a named driver exclusion. 4. Violation of Sections (d)(1) and (a)... 5 The Companies canceled policies when the risks appeared eligible for rating under the Companies filed surcharge plan or within the acceptable range of the Companies eligibility guidelines. 5. Violation of Section 2-207(b)... 3 The Companies failed to provide complete cancellation files for the following policies to otherwise help in the examination. 6. Violation of Section (b)(1)... 1 The Companies canceled a policy without providing the required forty-five (45) days notice. 7. Violation of Section (b)(3)(iii)... 1 The Companies canceled policies without providing the required actual reason. 8. Violation of Section (a) and (d)(1)... 1 The Companies canceled a policy upon consideration of an accident that was more than three (3) years old when the risk appeared eligible for rating under the Companies' filed surcharge plan. TOTAL 75

22 C. Automobile Nonrenewals Initiated By Companies The Companies were requested to provide the total population of automobile nonrenewals initiated by the Companies during the examination period. The Companies advised the MIA that the total number of such nonrenewals during the examination period was nine hundred five (905). The population included seven hundred thirty-five (735) for NMIC, nineteen (19) for NMFIC, forty-three (43) for NGIC, seventy-one (71) for NPCIC and thirty-seven (37) for CICW. Fifty (50) randomly selected files from the NMIC, NMFIC, NGIC and NPCIC populations were reviewed. All thirty-seven (37) files from CICW were reviewed. Therefore, a total of eighty-seven (87) files were reviewed. The review revealed a total of seventy-two (72) exceptions detailed as follows: Exception 1. Violation of Section (b)(4)(i) The Companies nonrenewed policies without providing a clear and specific reason. 2. Violation of Section (b)(1)(i) and COMAR The Companies nonrenewed policies without mailing the notices by certified mail. 3. Violation of Section (b)(1) The Companies nonrenewed policies without providing the required forty-five (45) days notice. 4. Violation of Section 2-207(b)... 2 The Companies failed to provide a complete nonrenewal file for policies to otherwise help with the examination. 5. Violation of Sections (d)(1) and (a)(2)... 2 The Companies nonrenewed policies when the risks appeared to be within the acceptable range of the Companies underwriting guidelines. 6. Violation of Section (d)(1) and COMAR The Companies nonrenewed policies without providing the correct address for the Maryland Insurance Commissioner.

23 7. Violation of Section (a)(2) The Companies nonrenewed policies without offering to renew subject to a named driver exclusion. TOTAL 72

24 D. Automobile Increase in Premiums Initiated By Companies The Companies were requested to provide the total population of automobile premium increases initiated by the Companies during the examination period. The Companies advised the MIA that the total number of such premium increases during the examination period was twenty thousand five hundred sixty-five (20,565). The population included fourteen thousand nine hundred seventy-four (14,974) for NMIC, eight hundred eighty-one (881) for NMFIC, one thousand six hundred nine (1,609) for NGIC, five hundred twenty-two (522) for NPCIC, and two thousand five hundred seventy-nine (2,579) for CICW. One hundred (100) randomly selected files were reviewed. The review revealed a total of one hundred eighty-five (185) exceptions detailed as follows: Exception 1. Violation of the Procedural Requirements of Section and COMAR The Companies increased the premium for policies without issuing required notice. 2. Violation of Section (b)(4)(i) The Companies increased the premium for policies without providing a clear and specific reason. 3. Violation of Section (d)(1) and COMAR The Companies increased the premium for a policy without providing the correct address for the Maryland Insurance Commissioner. 4. Violation of Section (b)(1)... 3 The Companies increased the premium for risks without providing the required forty-five (45) days notice. TOTAL The Compilation of Exceptions Report indicated twenty-two (22) exceptions for this category. The Companies response dated May 22, 2001 Exhibit, Item 11 indicated an additional one hundred fifty-six (156) policies that had moving violations were not issued Increase in Premium notices. The Companies are directed to provide restitution of the additional premium to these policyholders who did not receive the required notice.

25 E. Homeowner Declinations Initiated By Companies The Companies were requested to provide the total population of homeowner declinations initiated by the Companies during the examination period. The Companies advised the MIA that the total number of such declinations during the examination period was ninety-nine (99). The population was reduced to eighty-nine (89), since ten (10) of the declinations did not meet the criteria. The total population increased to one hundred thirty-one (131), as the Companies received forty-two (42) additional files from agents during the examination. All one hundred thirty-one (131) files were reviewed. The review revealed a total of one hundred eighty-three (183) exceptions detailed as follows: Exception 1. Violation of Section VII.1.m.of the Federal Consent Decree, COMAR and Section 2-207(b) The Companies declined risks but failed to maintain the complete declination file. 6 The Companies response dated May 22, 2001, Exhibit, Item 5 states, Nationwide asserts the MIA is without the jurisdiction to impose fines or penalties under the Consent Decree. The Companies are advised that these exceptions are presented to ensure consumer protection. Therefore, these consent decree exceptions will remain in this Report. On March 10, 1997, the Companies entered into a Federal Consent Decree, Civil Action No. C hereinafter referred to as Consent Decree. This resulted from alleged violations pursuant to the Fair Housing Act (Title VIII of the civil Rights Act of 1968, as amended by the Fair Housing Act Amendments Act of 1988), 42 U.S.C. 3601, et seq. The Companies allegedly violated the Act by discriminating on the basis of race, color and national origin in the provisions of homeowners insurance. As a result of the entry of this Decree, the MIA included in the Market Conduct Examination, a review of the Companies business practices to determine compliance with the Consent Decree in addition to Maryland s Insurance laws and regulations.

26 2. Violation of Section (a)(2) and/or (b).. 17 The Companies declined applicants for reasons that were not related to their business and economic purposes and issued declination notices for reasons relating to the condition of the dwelling. The notice also indicated that acceptance of the risk would require the applicant to provide proof of inspection/certification. The Companies also declined homeowner risks requiring an inspection/certificate by a qualified professional as a special condition to the acceptance of the risk. 3. Violation of Section III. A. 7 of the Federal Consent Decree The Companies declined applicants without fully explaining their homeowner standard eligibility remedy. Also, the Companies declined applicants without providing the full explanation for the adverse action, repair recommendations or telephone number to contact the agent or underwriter. In addition, the Companies declined applicants without providing required information such as the specific underwriting guideline and/or type of loss. 4. Violation of Sections (d)(1) and (a)(1)(2)... 3 The Companies declined applicants who appear to present risks within the acceptable range of the Companies eligibility standards. 5. Violation of Section 1681m (a) of the Fair Credit Reporting Act The Companies declined applicants without providing them with the information required by law. 6. Violation of Section III. A. 6. of the Federal Consent Decree and Section (a)(1)(2) The Companies declined applicants due to an adjacent vacancy, who otherwise appear to be eligible under the Companies underwriting standards. TOTAL 183

27 F. Homeowner Cancellations Initiated By Companies The Companies were requested to provide the total population of homeowner cancellations initiated by the Companies during the examination period. The Companies advised the MIA that the total number of such cancellations during the examination period was seven hundred seventeen (717). The population included seven hundred twelve (712) for NMFIC, and five (5) for NMIC. Fifty (50) randomly selected files were reviewed. The review revealed a total of eighty-five (85) exceptions detailed as follows: Exception 1. Violation of Section (a) and/or (b) The Companies canceled homeowner risks for reasons that do not appear to be related to their economic and business purpose, and appear to have unfairly discriminated against such risks. The Companies also canceled homeowner risks requiring an inspection by a qualified professional as a special condition to the acceptance of the risk. 2. Violation of Section (e)(1).21 7 The Companies canceled risks for reasons that are not clear and specific. 3. Violation of Section (d)(1).. 4 The Companies canceled risks in an unfairly discriminatory manner. 4. Violation of Section (d)(1) and Section III.A.9 of the Consent Decree The Companies canceled risks without providing a copy of the notice to their Urban Markets Development Office, in violation of Section III.A.9 of the Consent Decree and therefore, treated these risks in an unfairly discriminatory manner. 5. Violation of Section 2-207(b)... 7 The Companies failed to provide a complete cancellation file for policies to otherwise help in the examination. TOTAL 85 7 The Compilation of Exceptions Report indicated twenty-six (26) exceptions for this category. The Companies response dated May 22, 2001 Exhibit, Item 16 states in part, There is no statutory obligation to specify the exact underwriting standard. The MIA agrees to remove the exceptions where two (2) underwriting standards were indicated on the notices. The remaining exceptions noted in this Report reflect notices not providing the underwriting standard or the notices did not provide the date of the occurrence.

28 G. Homeowner Nonrenewals Initiated By Companies The Companies were requested to provide the total population of homeowner nonrenewals initiated by the Companies during the examination period. The Companies advised the MIA that the total number of such nonrenewals during the examination period was thirty-four (34). This population included thirty-one (31) for NMFIC and three (3) for NMIC; however, the population of three (3) provided for NMIC, were actually risks written in the NMFIC. Therefore, the total population of thirtyfour (34) are all from the NMFIC. All thirty-four (34) files were reviewed. This review revealed a total of forty-two (42) exceptions detailed as follows: Exception 1. Violation of Section (a) and/or (b).. 28 The Companies nonrenewed homeowner risks for reasons that do not appear to be related to their economic and business purpose and appear to have unfairly discriminated against such risks. The Companies also nonrenewed homeowner risks requiring an inspection by a qualified professional as a special condition to the acceptance of the risk. 2. Violation of Section (e)(1) 2 The Companies nonrenewed risks for reasons which are not clear and specific. 3. Violation of Section III.A.9 of the Consent Decree... 5 The Companies nonrenewed risks without providing a copy of the notice to their Urban Markets Development Office. 4. Violation of Section 2-207(b)... 7 The Companies failed to provide complete nonrenewal file for policies to otherwise help in the examination. Total 42

29 H. Analysis/General Business Practice Exceptions 1. The Companies through NMFIC and NMIC provide homeowners insurance coverage through their Golden Blanket, Elite II, and Market Value policy forms. The declination notices issued did not appear to indicate the specific Company and/or policy form for which applicants were declined coverage. The Companies should indicate on their declination notices all companies and all policy types for which a risk is declined in Maryland. The Companies response dated May 22, 2001 Exhibit, Item 17 states, Nationwide is revising process/letters to ensure inclusion of the company name, agent name, and agent phone number on all customer communications regarding rejection/non-renewal for both auto and property policies. 2. The Companies, under Section VI of the Consent Decree, were to provide a total of $2.2 million per year to provide financial assistance for low- and moderate-income homebuyers seeking to purchase and/or repair single-family owner-occupied homes in predominantly minority neighborhoods in at least five but not more than ten of the following metropolitan areas:. Metropolitan Baltimore was one (1) of the fifteen (15) metropolitan areas named in the Consent Decree. The Companies, after the review of the Compilation of Exceptions Report, were requested to respond to the following: Was Baltimore selected to receive financial assistance? If not, why not? If Baltimore was not initially selected, will it be reconsidered to receive financial assistance in the future? If Baltimore was selected, has the financial assistance increased the Companies presence? How (please provide as much detail as possible, including but not limited to reports detailing how the funds were spent)? Have the Companies implemented any other plan of action to increase their presence in metropolitan Baltimore other than that required by the Consent Decree? If not, why not and do the Companies plan to implement any future programs to increase their presence in metropolitan Baltimore? After the term of the Consent Decree expires, what plan of action will the Companies implement to maintain and continue to increase their presence in Metropolitan Baltimore?

30 The Companies response dated March 28, 2001, Section II Underwriting, H. states, Financial assistance Baltimore was one of the cities to receive financial assistance from the Consent Decree monies. Baltimore received $250,000 in 1998 and 1999, and $300,000 in These funds were distributed through Neighborhood Reinvestment Corporation (NRC) and used for financial assistance for low- and moderate-income homebuyers seeking to purchase and/or repair single-family, owner-occupied homes in predominantly minority neighborhoods. Annual reports submitted by NRC to the Department of Justice indicate the funds are being used as outlined in the Consent Decree. Other actions Nationwide has taken in order to increase presence in metropolitan Baltimore include: Auto and HO rate decrease taken February 18, 2000 One additional sales representative in our urban sales and service center hired during 2000 Urban satellite loan program which provides support to agents interested in opening a satellite office in a predominantly minority or urban community introduced in September 2000; Frank Goldbach has been approved for this program and three other applications are pending; all within the City of Baltimore Four new accounts have been signed with NGI. All four have members who likely live in the city and have had marketing campaigns. The accounts are MD Society of Accountants, State Employees Credit Union of MD, Baltimore Firefighters Local 734 and Baltimore Fraternal Order of Police. Also after the term of the Consent Decree, Nationwide plans to maintain the urban sales and service center. The urban satellite loan program is a four-year program.

31 III. RATING A. Automobile "New Business" Rating The Companies were requested to provide the total population of new automobile policies issued during the examination period. The Companies advised the MIA that the total number of such new automobile business files during the examination period was forty-seven thousand nine hundred eighty one (47,981). The population included twenty one thousand four hundred thirty-two (21,432) for NMIC, seven hundred seventeen (717) for NMFIC, one thousand two hundred seventeen (1,217) for NGIC, fifteen thousand six hundred eleven (15,611) for NPCIC, and nine thousand four (9,004) for CICW. One hundred (100) randomly selected files were reviewed. The review revealed a total of twenty (20) exceptions detailed as follows: Exception 1. Violation of Sections (d)(1) and (Incorrect Premium Determination) The Companies, in an unfairly discriminatory manner, rated risks using incorrect rating information to develop and issue the policy premium. 8 The Companies response dated May 22, 2001 Exhibit, Item 18 states, The situation presented in the examination is unique in that the customer requested limits, for which no rate was available, so the next higher rate was charged. Nationwide is taking steps to communicate to the appropriate persons that this practice is not appropriate.. The examination revealed one (1) such exception noted in this category. The MIA accepts the Companies position to ensure that risks are not treated in an unfairly discriminatory manner and that policies will be issued in accordance with the appropriate rate filings. In addition, the Companies are directed to ensure that in its current book of business all risks are charged the premium for the limits requested by the policyholders. Failure to do so could subject the Companies to sanctions under Section 4-113(b)(1)(2) of the Insurance Article.

32 2. Violation of Sections (d)(1) and (a)(2) (Incorrect Tier/Company Placement) The Companies, in an unfairly discriminatory manner, placed a risk in a higher priced rating plan (tier/company) when the risk appeared eligible for rating in a lower priced rating plan (tier/company). The Companies, in an unfair discriminatory manner, placed insureds in a lower priced rating plan (tier/company). 3. Violation of Section 2-207(b)... 1 The Companies failed to provide the complete rating file for a policy to otherwise help in the examination. TOTAL 20 9 The Companies response dated May 22, 2001 Exhibit, Item 19.B. states, Nationwide is in the process of re-underwriting the risks identified in the report. The Companies are directed to advise the MIA of the results of the re-underwriting and if applicable, the amount of refunds due policyholders.

33 B. Automobile "Renewal Business" Rating The Companies were requested to provide the total population of renewed automobile policies issued during the examination period. The Companies advised the MIA that the total number of such renewed automobile business files during the examination period was two hundred twenty-eight thousand three hundred fifty-six (228,356). The population included nine thousand four hundred five (9,405) files for NMFIC, one hundred eighty-eight thousand nine hundred fifty (188,950) for NMIC, nine thousand seven hundred nineteen (9,719) for NPCIC, eleven thousand two hundred seventyeight (11,278) for NGIC and nine thousand four (9,004) for CICW. One hundred (100) randomly selected files were reviewed. The review revealed a total of four (4) exceptions detailed as follows: Exception 1. Violation of Sections (d)(1) and (Incorrect Premium Determination). 1 The Companies, in an unfairly discriminatory manner, rated a risk using incorrect rating information to develop and issue the policy premium. 2. Violation of Sections (d)(1) and (a)(2) (Incorrect Tier Placement) The Companies renewed risks in higher priced rating plan when they appear to be eligible for a lower priced rating plan. 3. Violation of Section 2-207(b)... 1 The Companies failed to provide the complete rating file for a policy to otherwise help in the examination. TOTAL 4 10 The Companies response dated May 22, 2001 Exhibit, Item 19.B. states, Nationwide is in the process of re-underwriting the risks identified in the report. The Companies are directed to advise the MIA of the results of the re-underwriting and if applicable, the amount of refunds due policyholders.

34 C. Homeowner "New Business" Rating The Companies were requested to provide the total population of new homeowner policies issued during the examination period. The Companies advised the MIA that the total number of such new business files during the examination period was fifteen thousand two hundred forty-six (15,246). The population included fourteen thousand eight hundred twenty-nine (14,829) files for NMFIC, and four hundred seventeen (417) for NMIC. One hundred (100) randomly selected files were reviewed. The review revealed a total of three (3) exceptions detailed as follows: Exception 1. Violation of Sections (d)(1) and (Incorrect Premium Determination) The Companies, in an unfairly discriminatory manner, rated risks using incorrect rating information to develop and issue the policy premium. TOTAL 3

35 D. Homeowner "Renewal Business" Rating The Companies were requested to provide the total population of new homeowner policies issued during the examination period. The Companies advised the MIA that the total number of such new business files during the examination period was one hundred twenty-eight thousand seven hundred four (128,704). The population included one hundred twenty-four thousand three hundred forty-two (124,342) files for NMFIC, and four thousand three hundred sixty-two (4,362) for NMIC. One hundred (100) randomly selected files were reviewed. The review revealed a total of five (5) exceptions detailed as follows: Exception 1. Violation of Sections (d)(1) and (Incorrect Premium Determination) The Companies, in an unfairly discriminatory manner, rated a risk using incorrect rating information to develop and issue the policy premium. 2. Violation of Section (d)(1) The Companies, in an unfairly discriminatory manner, failed to provide 100% of the replacement cost value as required to meet the Companies underwriting standard. TOTAL 5

36 E. Analysis/General Business Practice Exceptions I. The Companies (NMIC and NPCC) automobile TIER PLACEMENT MATRIX is used to determine eligibility placement of new business risks. The matrix states in part: At-Fault Accidents (AF) No more than 1 in the last 35 months per car or per driver This appears to place a combined maximum number of occurrences on a household basis to determine the acceptability of a risk. The Companies filed rates are assigned and the premium is developed on a per driver basis. It is an unfairly discriminatory practice to determine the eligibility of a risk on a per household basis in lieu of a per driver basis when the Companies' premium development is solely determined by an individual's driving history. The Companies response dated May 22, 2001 Exhibit, Item 19. C states, Nationwide asserts the tier placement matrix is applied per person/per vehicle and the insured is place in the lowest priced tier available. The tier placement matrix clearly states that customers are to be written at the lowest driver experience factor for which they qualify. Nationwide plans to re-communicate this to agencies Within 30 days, the Companies should demonstrate why it should not remove the per vehicle verbiage from the tier placement matrix to ensure the proper application of the intent of this matrix. II. The Companies were requested to provide all policy forms in use during the examination period including all forms submitted to their insureds. The examination of the forms, endorsement and information provided to the examiners did not include notice to insureds regarding the effect of failure to renew or replace motor vehicle insurance. As a result, the examiners were unable to determine compliance by the Companies with Section Section provides: Before the actual expiration of a policy of motor vehicle insurance that results from nonpayment of a renewal premium, the insurer shall provide notice to the insured in clear and specific terms that if the insured fails to renew or repace the motor vehicle insurance before the due date, Section of the Transportation Article provides that uninsured motorist penalties be assessed and that evidences of registration be surrendered to the Motor vehicle Administration and that failure to surrender the