Several states allow insurers to offer usage-based private passenger automobile insurance, also known as “pay as you drive” insurance. Under these types of programs, drivers have a financial incentive to drive less and perhaps also more carefully. All of the programs are mileage based, with discounts given for driving fewer miles, but some also take driving behavior into account. Electronic devices can be installed into the vehicle to monitor how a car is being driven (speed, rapid acceleration, rapid braking, etc.)

This got me thinking about what a great idea it is to provide consumers with an opportunity to save some money and help protect the environment at the same time, simply by adjusting their driving habits. I would definitely take advantage of a pay as you drive program if given the opportunity to do so.

In addition to Washington, many other states and organizations are actively involved in researching and promoting usage-based insurance programs. Although they are in various stages, they all recognize the benefits these programs can have for consumers, the industry and the environment. Here is some recent activity taking place around this subject:

California adopted pay as you drive regulations in 2009. The California law allows only mileage-based rating plans. According to the Commissioner’s 2012 Earth Day Press Release, four companies are offering usage-based insurance programs in California.

Last year, the Commissioner of Michigan issued Bulletin 2011-10-NS to insurers and consumers to publicize the availability of pay as you drive rates. The bulletin reminds insurers that they are allowed to offer mileage-based policies based primarily, or solely, upon average miles driven weekly, annually, or both; or daily or weekly commuting mileage, pursuant to 500.2111.

New York City issued a Request for Expressions of Interest regarding how a pay as you drive insurance program could be implemented in the City and the state to help reduce traffic congestion and pollution. The Department of Transportation solicited responses from interested parties regarding any legal, regulatory, financial or technical issues that may pose a barrier to implementing such a program and what the critical success factors would be.

Massachusetts plans to start a pilot usage-based insurance program as part of its Clean Energy and Climate Plan for 2020. This would help the state in its goal to reduce greenhouse gas emissions to 25% below 1990 levels over the next decade.

Ceres (a network of companies concerned about global warming) believes that usage-based programs could significantly reduce greenhouse gas emissions if actual mileage driven were factored into the price of auto insurance. A 2008 study by the Brookings Institution  indicates that the number of miles driven would drop by about 8% overall if drivers paid by the mile, with an average annual insurance savings of $270 per automobile.

Mileage information can come from the odometer (which is validated at the end of each policy period) or by an electronic device linked to the odometer or from a wireless sensor that can monitor mileage well as speed and other driving habits. Initially, there were privacy concerns when usage-based programs were introduced; however, the devices currently in use do not keep track of the location of the vehicle. This, along with the growth of social media, seems to have lessened these concerns. In a national opinion poll  conducted by ISO in 2010, 1/3 of respondents said they would purchase a pay as you go policy if they could get a discount on their auto insurance, 1/3 said they would purchase such a policy if the program reflected their actual driving performance, and the remainder was undecided.

The driving public seems to be very interested in pay as you drive insurance programs. Let’s hope the states and insurers are able to continue bringing the programs to a broader market.

Editor’s Recommendation: Stay informed about usage-based insurance program initiatives with NILS INsource.

More than ever, we need to stay focused on the big picture and see our functional compliance responsibilities as part of an overall enterprise risk management strategy.  A growing trend requires insurers to identify operational risks to the functional department level.  It appears likely that some form of the National Association of Insurance Commissioners (NAIC) “Own Risk and Controls Assessment” (ORSA) will be adopted in 2012.  ORSA will require larger insurers to self-identify and report internal operational risk and control strategies to state regulators to enable regulators to better understand insurer and industry wide solvency.  Insurers and reinsurers operating in the European market will have to respond to Solvency II mandates, which also will require that organizations assess internal operating risks and develop appropriate financial strategies and controls.

The NAIC’s Model Laws 440 and 450 were amended in December 2010 to address enterprise risk annual reporting requirements within the insurance company holding system.  State legislatures are moving ahead with adoption of the revised Models; recently, for example, Rhode Island adopted final amendments to Insurance Regulation 17 – Insurance Holding Company Systems, effective April 12, 2012, that includes this ERM requirement.  Texas, West Virginia and Indiana have also enacted requirements, and 2012 legislation that would require ERM reporting is pending in multiple states.

An effective enterprise risk management strategy is ongoing.  It begins with comprehensive training for new employees, and generally includes some kind of internal audit or other quality assurance self check designed to measure overall effectiveness.  Between training and quality assurance initiatives comes the everyday challenge of understanding the implications of our daily responsibilities and doing our jobs well.  As compliance professionals, we are continually challenged to update our knowledge and resources and to effectively manage our priorities – in other words, to control the organizational risks.  Compliance professionals who own and effectively implement risk controls on an everyday basis are the organization’s greatest asset in a risky compliance environment.

Editor’s Recommendation:  Stay up to date with changing compliance requirements with NILS INSource, INcompass and AuthenticWeb.

Sovereign Immunity:

Beginning November, 1, 2012, governmental institution insurers in Oklahoma are going to want to know that state and political subdivisions will no longer be liable for a loss or claim that occurs from the use of indoor or outdoor school property that is made available for public recreation before or after school hours or on weekends and during school vacations.  They will also not be liable for losses resulting from the use of a public facility opened to the general public during an emergency.  (51 s 155)

Effective March 7, 2012, the commissioner of insurance and executive director of the Department of Health in Utah, as well as their employees or representatives, are immune from liability and civil action related to furnishing information obtained under the new health data authority health insurance claims reporting requirements of Rule R590-262.  The immunity is provided so long as the data is released to other government officials or the insurance company that issued the policy connected with the data. (Rule R590-262-12)

Wisconsin insurers that provide governmental liability will want to know that as of April 5, 2012, the specific immunity exception for cities, villages, towns and counties being held liable for damages caused by highways being in disrepair has been repealed. The immunity exception for damages from the accumulation of snow or ice that has existed on a highway for at least 3 weeks remains in effect. (893.83)

Automobile Salvage Title:

Beginning August 1, 2012, an insurer in Minnesota that has retained ownership of a vehicle that is a total loss and obtained a junking certificate on it, will be able to sell the vehicle to a licensed scrap metal processor.  (168A.151)

In Indiana, beginning July 1, 2012, auto insurers should be aware that the required designation “Rebuilt Vehicle-Mileage Not Actual” is being replaced with “Rebuilt Vehicle-Mileage Unknown” on titles issued to rebuilt vehicles which are not flood damaged. (9-22-3-16)

Damage Caps/Punitive Damages:

In Indiana, beginning July 1, 2012, the civil liability for acts (or failures to act) of a community fast responders performed within the scope of their duties will be limited to the coverage provided by the policy required to be purchased by the community fast responder nonprofit corporation.  The civil liability of the community fast responder nonprofit corporation is limited to $5 million for injury or death of all persons in an occurrence.  Neither the responder nor the corporation will be held liable for punitive damages. (36-8-23-5)

In Virginia, beginning July 1, 2012, contractors and agents, in addition to employees, will now be entitled to all relief necessary to make them whole if they are discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against because of performing lawful acts. (8.01-216.8)

What is listed above is just a sampling of the various types of non-insurance related regulation that came across my desk within the past week.  What comes across yours?

Editor’s Recommendation:

With NILS INsource and AuthenticWeb for Claims you can keep current with changes that can impact your claims settlement practices.

The rule proposes a standard and unique Health Plan Identifier to replace the myriad identifiers and formats currently in use, such as taxpayer IDs, employer identification numbers (EINs) and other codes and numbers. Adoption of a standard HPID, HHS notes, would remedy problems such as misguided transactions, rejected claims, and problems determining patient eligibility resulting from the range of IDs currently in use.
Covered entities would be required to use an HPID in all covered transactions involving a health plan.

Under the rule, two identifiers are called for: the HPID and the “Other Entity Identifier” (OEID), which would apply to groups that provide services in connection with health plan functions — health care clearinghouses, third party administrators (TPAs), and repricers that often contract with insurance companies, for example.

In addition to reducing administrative problems as mentioned above, once implemented, the HPID/OEID is expected to result in cost savings that may approach upwards of $4 billion within 10 years.

The proposal calls for affected entities to begin registering for the IDs between October 1, 2012 and March 31, 2013. Testing would be conducted between April 1, 2013 and September 30, 2013, with implementation commencing October 1, 2013.

The proposed rule also extends the deadline for use of ICD-10 code sets used in claims management and medical billing from October 1, 2013 to October 1, 2014, responding to providers concerned with the difficulty of implementing the new edition in the time provided.

Editor’s Recommendation: NILS INsource can help keep you current with PPACA and healthcare reform initiatives.

Alabama’s HB 126, Kentucky’s HB 135, Maryland’s SB 77 and Tennessee’s HB 2283 and SB 2554 all filed earlier this year look to NCOIL’s Model Unclaimed Life Insurance Benefits Act, as originally adopted in November 2011. Of this group of state initiatives, all remain pending with the exception of Kentucky’s bill which was signed into law on April 11, 2012 with an effective date of January 1, 2013. The general requirements proposed in these bills include insurers performing comparisons of insureds’ in-force life insurance policies and retained asset accounts against the Death Master File, on at least a quarterly basis, using criteria reasonably designed to identify potential matches of its respective insureds. Potential matches identified require that the insurer take additional steps within 90 days of the match in this defined claims process including:

• Completing a good faith effort, which is to  be documented by the insurer, to confirm the death of the insured or retained asset account holder against other available records and information
• Determining whether benefits are due in accordance with the applicable policy or contract and if benefits are due in accordance with the applicable policy or contract
  • Using good faith efforts, which are to be documented by the insurer, to locate the beneficiary or beneficiaries
  • Providing the appropriate claim forms or instructions to the beneficiary or beneficiaries to make a claim including the need to provide an official death certificate, if applicable under the policy or contract.

As recent as last week, the legislative trend continued with the introduction of SB 6943 in New York on April 13^th. It too looks to the November version of NCOIL’s Model Unclaimed Life Insurance Benefits. This New York initiative follows on the heels of the reporting requirement established last July by the Insurance Department with interim reports which were due over several months on insurers’ progress addressing issues including updated claims procedures and cross-checking against the SSA’s Death Master File.

Editor’s Recommendation: NILS INsource can help keep you current with unclaimed property legislative initiatives.

The Indiana Department of Insurance issued Bulletin 191 on March 6, 2012 to direct insurers to implement a suspension of any penalty attached to late payment and a 60-day moratorium for the cancellation of any insurance policy in effect for any policyholder directly affected by the severe weather events that occurred on March 2 and located in designated impacted areas. The moratorium applies to cancellations and nonrenewals attributed to a failure to pay premiums directly as a result of the disaster events during the 60-day period.

On March 12, 2012 the Ohio Department of Insurance provided guidance to insurers via Bulletin 2012-01 regarding the State of Emergency declared in Clermont County from storms that occurred on March 2, 2012. In the Bulletin, the Superintendent of Insurance requested that companies allow their insureds to defer premium payments coming due for up to 60 days from the original premium due date. Also, regarding any policy provision that imposes a time limit on an insured or claimant to perform any act, companies are to extend such time limits at least 60 days from the last day allowed under the terms of the contract. This 60-day period is not to extend past June 8, 2012.

Following the severe storms on February 28-29 and March 2-3, 2012, the Kentucky Department of Insurance released Advisory Opinion 2012-02 on March 9, 2012. Also, The Kentucky Governor and Secretary of State also issued Executive Order 2012-196 on March 14, 2012. The opinion and the order were issued to offer guidance for insurers, producers and adjusters. The guidance included the requirement that insurers must supply a copy of a policy upon a policyholder’s request without charge. Also, no cancellations or nonrenewals are allowed from the start of the storms at the end of February until the Executive Order is officially terminated. Additionally, any rate increase with an effective date on or after February 29, 2012, shall be deferred during the pendency of this emergency; the coverage shall remain in effect at the previously established rate. Lastly, insurers are permitted to extend time periods for customers to pay charges which may be due, such as premiums, copayments and deductibles.

On April 4, 2012, on the NBC TODAY television morning show, weather anchor Al Roker pointed out that last April the country saw a record of 758 tornadoes. Indeed already, last week (the first week of April 2012), the state of Texas experienced many severe twisters that ended up moving across the south. Certainly, we all hope we are not on track for the same record amount as we had in 2011.

Editor’s Recommendation: Keep current with state regulatory post-disaster guidance in NILS INsource and the Adverse Decision Matrices.

In February, I wrote about the fact that DHHS announced that religious-affiliated employers would be exempt from the requirement to cover birth control for their employees if employees could obtain contraceptive coverage directly from health insurers. After the announcement, it was discovered that many religious-affiliated organizations (examples are hospitals, universities, and social service agencies) are self-insurers. On March 16th, DHHS announced that coverage will be provided by third party administrators or some other independent entity. Final rules for “self-insured employers” will be issued after the November elections, but before August 1, 2013. Presumably, the money to pay the claims and other fees normally paid for by an employer could come from pharmaceutical companies. Drug rebates could be used to help pay for coverage if a religious organization objects to providing this coverage to its employees. Otherwise, the federal Office of Personnel Management (“OPM”) could encourage or require one or more private insurers to provide contraceptive coverage for people in a religious organization’s health plan. Under PPACA, the OPM will sign contracts with at least two insurers to offer comprehensive coverage.

In addition, the DHHS issued a final rule requiring contraceptive coverage under student health plans offered by many colleges and universities. The requirement applies to health plans underwritten by private insurers. It doesn’t apply to student health plans at self-insured colleges and universities.

Just this week, the Supreme Court heard oral arguments related to PPACA’s constitutionality. Arguments included whether it was too early for the Supreme Court to consider the case since penalties do not start until 2014, whether the individual mandate is constitutional, and if it is ruled unconstitutional, what happens to the rest of the law. Lastly, arguments were heard on whether Congress was entitled to impose conditions on the states in expanding the Medicaid program.

Since it has been all over the media this week, I am not going to get into the details. Suffice it to say that health insurers are worried about the impact of a declaration that the individual mandate is not constitutional, but the rest of the law remains intact. The requirement to cover people with preexisting medical conditions without the ability to charge higher premiums for the sickest people means that premiums could skyrocket and healthy people would wait to be covered. It is expected that the Court’s decision will be simple due to the length of time before the opinion must be issued (3 months) and the fact that the law is almost 3,000 pages long. We’ll just have to wait and see.

• Arkansas no longer accepts SERFF filings containing multiple types of insurance (TOIs) — aka “package” filings — for certain coverages as of December 8, 2011. The coverages affected are Employment Practices Liability, Directors and Officers Liability, Professional Errors and Omissions, Fiduciary/Trust and Internet/Technology Media Risk. Filings for these coverages must be submitted under the correct TOI to facilitate department review with respect to the defense costs outside the limits requirement and applicable exemption order. Any previously filed forms containing defense within the limits, that are not exempt from filing requirement, will not be renewed. Insurers must file new forms for approval which do comply with the defense outside the limits requirement. (Directive 3-2011)

• New York added a new special risk insurance exemption (“class 3”) from rate and form filing and approval requirements until June 30, 2013, for certain types of policies issued to large commercial insureds. To be eligible to be a class 3 risk, insurers must file a certificate of insurance within 1 business day of binding the coverage, a supplemental checklist and certification form within 30 days of policy inception, and, for informational purposes, any policy forms not previously filed in New York within 3 business days after the policy is delivered but no later than 60 calendar days after policy inception. (Circular Letter 2011-10)

• South Dakota requires insurers that offer permissive user drop down coverage on private passenger automobile or commercial automobile policies to include a statement on the application and a signature line for the insured to acknowledge the statement. New policies issued after February 28, 2012, must use a separate endorsement for this coverage. The endorsement must be filed with and approved by the DOI. There are also requirements for communicating to current insureds on policies issued prior to February 28, 2012. (Bulletin 12-02)

• Montana requires insurers to file all electronic and telephonic questions that are used in the application process before May 9, 2012. Questions used in the underwriting process that are not considered part of the application process are not considered part of an electronic or telephonic application. Insurers may make an informational filing if the forms they use mimic forms already approved by the DOI. Insurers may continue to use forms that were in use prior to January 9, 2012, if the forms are filed for approval before May 9, 2012. Forms not submitted for review and approval by May 9 cannot be used.  (Advisory Memorandum of January 9, 2012)

• Connecticut requires geographical rating territories and any amendments to such geographical rating territories used in private passenger nonfleet automobile to be filed for approval prior to use. Insurers must also file a copy of the classification system that uses ZIP Codes to establish geographical rating territories. Insurers must file updated territorial indications and relativities at least once every 3 years following the initial or amended rate filing submitted on or after July 1, 2012. In addition, an insurer must make a private passenger automobile rate filing each time it seeks to change the base rate on a new or renewal private passenger nonfleet automobile insurance policy. These requirements do not apply to motorcycles, recreational vehicles or antique, rare or special interest motor vehicles. (38a-686-1, 38a-686-2, 38a-686-3)

• Delaware expects all insurers’ automated policyholder notification systems to be compliant with notification requirements of the Civil Union and Equality Act of 2011 no later than June 1, 2012, and still comply with the initial general notification by January 1, 2012. All policy forms, applications, or other material provided or made available to policyholders or potential policyholders must be in compliance with the Act.  (Domestic/Foreign Insurers Bulletin 46)

• California increased filing or approval cost recovery fees for Workers Compensation forms and certain other documents effective March 28, 2012. (T. 10 s 2202,  Bulletin 2011-4)

• In Tennessee, the DOI’s position is that statutorily required policyholder notices may be made electronically when the policyholder’s email address is on file with the insurer AND the policyholder elects to receive communications through email. Insurers must make a disclosure to policyholders who elect this electronic communication, either in the policy itself or in a separate disclosure form. (Bulletin dated January 26, 2012)

• Nebraska allows insurers to use the Federal Model Privacy Form or continue to use other types of privacy notices that meet the Nebraska Privacy of Insurance Consumer Information Act. Insurers may rely on use the Federal Model Privacy Form as a safe harbor of compliance with the privacy notice content requirements of the Act. (Bulletin CB-127)

Editor’s Recommendation: Keep current with new and updated state filing requirements for policy forms and rates with AuthenticWeb for State Filing.

On the regulatory side, the Alaska Division of Insurance adopted 3 AAC 26:850 through 3 AAC 26:865 effective December 7^th setting forth that state’s disclosure and supplemental contract requirements when such accounts are used. The Louisiana Department of Insurance issued Bulletin 2012-01 on March 15^th establishing that state’s disclosure standards regarding insurers’ payment of life insurance death benefits including advising the beneficiary of the right to receive benefits in the form of a lump sum payment upon receipt of a claim and written information describing the available settlement options. If the death benefits are settled through a retained asset account, additional disclosure and supplemental contract requirements apply.

On February 24th, New York’s Department of Financial Services issued Circular Letter 2012-4 which provides detailed information on the use of this settlement method. The Department further states in that document that “as of April, 1, 2012, an insurer should only use an RAA when a policyholder or beneficiary expressly chooses that mode of receiving death proceeds, when the insurer explicitly informs the beneficiary in writing that it has a right to receive a lump sum payment by a single check instead, and when the insurer provides the beneficiary with the clear and conspicuous disclosures described in this Circular Letter.”

Regarding investigatory inquiry into how insurers have implemented claims processing requirements when using retained asset accounts as a settlement option, the Maryland Insurance Administration recently published two market conduct exams. These exams, collectively, provide the life industry with an interesting snapshot of compliance risks – areas where other companies using such accounts as settlement options might want to audit to ensure adherence to both this state’s, as well as other jurisdictions’  requirements. The identified compliance issues in these two exams all involve failures to provide the various required written disclosures to the beneficiary as identified below: 

• At the time of claim submission the banking services provided under the RAA
• All available settlement options under the policy or contract, when the beneficiary filed for claim proceeds
• The banking services provided under the RAA
• The banking services provided at no charge
• The banking services provided for a fee, and the amount of the fee
• A statement as to whether the RAA is protected by the FDIC
• The nature and frequency of RAA statements
• The telephone number and address where the beneficiary can obtain additional information regarding the RAA
• The minimum withdrawal amount from the RAA 

The regulatory requirements concerning the use of retained asset accounts continue to evolve, along with anticipated additional inquiry into how insurers have addressed and implemented new claims processes targeted to achieve compliance.

This scenario has played out in Florida’s boom-and-bust real estate market for years.  Until the recession hit hard, millions eagerly bought their places in the sun despite the all-too-real risks of hurricanes, high winds, floods, sinkholes, brushfires and occasional tornado activity.  Florida is high risk territory for residential property insurers and it is generally conceded that there will always be a need for a residual market.  To meet the need, the Florida Windstorm Underwriting Association was created in 1972 to provide wind-only coverage in coastal regions.  Following Hurricane Andrew in 1992, the Florida Residential Property and Casualty Joint Underwriting Association was created to provide insurance for hundreds of thousands of Floridians unable to find homeowners insurance.  These agencies merged in 2002 to create Citizens Property Insurance Company, a take-all-comers public insurance fund.  Following the 2004-2005 hurricane seasons, in which 8 named hurricanes hit the Florida mainland and caused billions in property damage losses, remaining voluntary market insurers cancelled homeowners’ policies and withdrew from the market in alarming numbers. Coastal homes, manufactured and mobile homes, and other hard-to-place risks including most residential wind coverage, were generally placed with Citizens.  Today, Citizens is the largest property insurance writer in Florida and covers some 1.5 million policyholders.  Has Citizens become “too big to fail”?  Is it adequately funded to make timely claim payments in the event of another hurricane catastrophe?

This year’s legislative session featured the rise and fall of HB 245, a bill designed to reduce the number of policyholders covered by Citizens.  Bill sponsors argued that Citizens has grown so large that another devastating hurricane season could threaten state financial solvency as well as trigger assessments to other Florida policyholders to ensure that Citizens can pay out claims.  Under HB 245, thousands of Citizens policyholders would have been moved into surplus lines companies.  During legislative debate, consumer advocates sounded the alarm that important policyholder protections would be lost.  Surplus lines rates are not regulated by the Florida Office of Insurance Regulation and surplus lines carriers are not backed by the Florida Insurance Guarantee Association fund in the event of insolvency.  HB 245 opponents, described as an “unusual coalition of Democrats and Republicans,” passed an amendment to provide that policyholders must “opt in” to surplus lines coverage and be moved only after signing an agreement with their insurance agents.  Upon the consumer-friendly amendment’s passage, legislative leadership recognized that informed policyholders would be unlikely to “opt in” to unreglated surplus lines coverage, thereby defeating the bill’s purpose of downsizing Citizens. On March 6, the bill sponsor declined to advance the bill for the remainder of the 2012 legislative session.

Last year’s legislative session produced SB 408, an attempt at major property insurance reform, which was signed into law last May.  The bill enacted significant deregulation provisions designed to make writing Florida property insurance policies more attractive to the voluntary market.  Whether insurers will be drawn back in sufficient numbers to reestablish a truly competitive market for Florida residential policyholders is an open question.

Editor’s Recommendation:  Stay up to date with new legislation with NILS INsource  and NILS INcompass.