Life insurance market conduct exams, when looking in on just one state’s activity, often echo many of the frequently observed compliance challenges including underwriting, claims, policy replacement and producer issues, generally seen on a perennial basis across multiple states. Performing an “examination” of recent Maryland market regulation actions can provide us insight into many of the detailed violations in these areas, perhaps allowing for some opportunities to validate one’s own existing processes for adherence to this state’s regulatory requirements.
Examiners surfaced a number of issues concerning various insurers’ policy summaries in 2010, all of which indicated noncompliance with COMAR 31.15.03.04. For example, in a December 2010 exam, it they determined that:
- The Company failed to include the address of the home office or administrative office of the carrier on the Policy Summary.
- The Company failed to include the name and address of the insurance producer on the Policy Summary.
- The Company failed to include the generic name of each rider on the Policy Summary.
- The Company failed to display the annual premium, amount payable upon death, the annual premium of each optional rider, and total guaranteed cash surrender value at policy maturity on the policy summary
A November 2010 exam noted that “the Company is in violation of COMAR 31.15.03.04H (12) for failing to add a statement to the policy summary, in capital letters, that the prospective purchaser should not consider any oral representation made to the prospective purchaser by an agent unless it is disclosed in writing in a form signed by the agent, and the agent leaves the written disclosure with the prospect.” Other policy summary related criticisms had also surfaced earlier last year in an October exam, including the following:
- The Company failed to include the annual premium of each optional rider on the Policy Summary, a violation of COMAR 31.15.03.04 A (5)(b)
- The Company failed to provide a “Statement of Policy Cost and Benefit Information” in compliance with this regulation, a violation of COMAR 31.15.03.05 C (2)(b)
And two September exams collectively determined these issues, all of which violated COMAR 31.15.03.04:
- The Company failed to include the date on which the policy summary is prepared
- The Company failed to indicate on its Policy Summary whether the effective policy loan annual interest rate is applied in advance or in arrears
- The Company failed to include the effective policy loan annual interest rate on its Single Premium Whole Life Policy Summary
- The Company failed to indicate on its Single Premium Whole Life Policy Summary that the policy loan annual percentage rate will be determined by the carrier in accordance with the provisions of the policy and applicable law.
Closely related to the policy summary requirements in Maryland is the insurer’s obligation to provide a buyer’s guide to all prospective purchasers before accepting the applicant’s initial premium or premium deposit, found in COMAR 31.15.03.05. From June 2010 through February 2011, there was at least one final adoption of an exam which included negative findings associated with this requirement and the use of the NAIC Buyer’s Guide. The more frequently seen one was that the “Company failed to provide the most current version of the NAIC Buyer’s Guide to Maryland insureds.” Other related buyer’s guide criticisms often acknowledged that the insurer was using the current version of the buyer’s guide, but that there were one or more issues associated with the policy summary content and references to the life insurance buyer’s guide.
Other negative disclosure determinations included the required guaranty notice in a November 2010 exam where it was found that “the Company is in violation of COMAR 31.04.14.03 for the use of four of the five versions of the notice that were not in compliance. And in September 2010, examiners criticized an insurer for failure to use the required language in the regulation for their Guaranty Notices. The use of unapproved policy forms and rating errors were also noted in that same exam where the insurer was criticized for a violation of §12-203(b), for using two unapproved forms in the issuance of insurance policies and for charging premium in excess of or less than the premium charge specified in the policy and set by the insurer, a violation of §27-216(b).
-
Claims challenges, certainly a problem faced by insurers across all lines, surfaced in recent Maryland exams. A November 2010 exam’s findings included:
- The Company is in violation of §16-109 for failing to pay interest at the declared rate on 16 individual life insurance claims
- The Company is in violation of §17-102 for failing to pay interest at the declared rate on six group life insurance claims
An October 2010 exam determined that an insurer did not pay the statutory interest due on three claims for death benefits. And in September, an insurer was found to be in noncompliance with § 27-208 due to its inconsistent payment of interest on life insurance death claims inconsistently, providing a varying number of additional days (from 0 to 4 days) for mailing on some benefit payments.
Just as we have seen in other states, replacement issues also surfaced recently in Maryland. A November 2010 exam found that an insurer was in violation of COMAR 31.09.05.06A(2) due to the following situations:
- failing in three instances to notify any other existing insurer that may be affected by the proposed replacement within five business days of receipt of a completed application indicating replacement
- failure to issue a notice of proposed replacement to the existing insurer within five days of receipt of a completed application indicating a replacement for 22 annuity contracts and nine life insurance policies
- failing to send a letter of notification to the replaced insurer in two samples reviewed and for failing to send a notification letter to the replaced insurer within the required time frame in one sample reviewed
Several producer-related compliance challenges were observed in a March 2010 exam.
- The Company failed to maintain and produce an accurate, updated producer register within the required time frame, a violation of COMAR 31.03.13.02
- Through the examination survey period, the illustration program used by the Company’s producers in Maryland did not provide for the printing of the producer’s business address on the illustration provided to the applicant as required, a violation of COMAR 31.09.09.06
Also included in that exam were these three criticisms, which are all violations of COMAR 31.03.13.04:
- The Company failed to send the required producer appointment letter within 30 days of the appointment
- The Company did not provide proper notification to one hundred six (106) producers regarding document retention requirements
- The Company did not notify ten inside producers within the required thirty (30) day period of their appointment
Examining these various exams certainly illustrates some rather repetitive examples of compliance challenges across some key functional areas in life insurance companies. And the criticisms extracted may serve as a checklist of sorts to audit one’s own regulatory compliance processes.
Editor’s Recommendation: Stay current with Life insurance market conduct activity quickly and easily with the Market Conduct Exam Module for Life and Health Insurers.
