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ComplianceMarch 29, 2023

Insurers and claims handling: Challenges in achieving compliance

By: Kathy Donovan
Published in The Regulator, Winter 2023, by the Insurance Regulatory Examiner Society

Insurers understand that claims handling requirements present multiple challenges across all lines of business. Whether an insurer is processing property and casualty, health, or life and annuity claims, claims professionals constantly face issues in effectively managing all related claims handling requirements for their applicable lines of business.

The identification of the oftentimes state-specific and line-specific claims disclosures, processing timeframes, fraud warning notices, settlement options, coverages and benefits requirements are just a few areas where regulatory changes regularly impact one’s claims processing systems. In addition to all those requirements, multiple compliance “touch points” within any given claim provide many opportunities for a variety of potential missteps—compliance, procedural or other—along the way to resolving the claim. Then, of course, claims professionals certainly can take note of the examples of claims challenges and noncompliance published in state market conduct exams and enforcement actions.

Looking first to those many and varied requirements impacting claims, extensive internal efforts and resources on the part of the insurance company are required to identify, track, revise, and implement all the requirements that are applicable to the lines of business written. Traditional processes such as claims manuals can—without constant and consistent updating—leave companies vulnerable to market conduct fines, as well as to a heightened level of future scrutiny by the same state, in addition to other states. Critical gaps in a company’s ability to meet regulatory requirements can result when procedures are not consistently updated.

State market conduct exams and enforcement actions provide insight into claims handling challenges across all lines, with timeliness issues leading the way. In determining the key areas of claims challenges, a review of actual market regulation experience over multiple years shows that the key areas of compliance concerns for the claims professional continue to be in these primary areas, along with maintaining adequate documentation:

  • Timely claim handling
  • Required notices and disclosures
  • Payments per policy provisions and coverages

Timely claim handling requirements provide the framework of regulator and consumer expectations and rights in the claims process. While the actual timeframes can vary by state and line of business, recent market conduct violations indicate that insurers continue to have challenges adhering to those time-sensitive requirements. Whether the timeframe requirements apply to acceptance/denial of a claim, independent medical review requests, or delay letters, claims professionals have multiple timing constraints.  

Policyholder/subscriber notices and disclosures play an important role in consumer protection within the claims process.  As is the case with claims timeframe requirements, mandated disclosures also vary by state and can include an after-market parts notice, specific fraud warning notices, policy coverage information, intent to subrogate, and other state-specific requirements—such as California’s mandate to send the insured a legible reproduction of pertinent sections of Section 790.03, along with a written notice in at least 10-point type, of the availability of applicable regulations. Insurers are required to use specific language in that disclosure.

Paying per the policy provisions is still another primary area presenting challenges, as evidenced in the market regulation process. Particular attention in achieving health payment/benefits compliance involves adherence to federal health coverage mandates, as well as individual state-mandated benefits. Claims payment challenges also include ensuring that any interest applicable to late payments, as well as applicable late-payment penalties, are paid in accordance with the state laws.

All these known challenges provide insurers with direction and indicate the steps that can be taken to proactively address these compliance needs. The translation of each company’s “claims requirements knowledge” into ongoing training continues to be a critical element in helping effectively manage the challenges in the everyday life of claims handlers. The claims staff having ready access to those current requirements—in both manuals and in training materials—helps to ensure that ongoing training occurs.

Using the state requirements, along with company best practices, can serve as benchmarks to measure claims processing compliance.  Tied into these compliance audits is the underlying requirement of ensuring that appropriate claims documentation is consistently maintained to facilitate not only the internal compliance audits, but also the market conduct exam process. Incorporating market conduct results from various states can also assist in informing claims professionals and internal compliance staff.

Ultimately, the lessons learned from the market regulation process, coupled with current state statutory and regulatory requirements, can significantly assist insurers in their efforts to achieving claims compliance and overcoming these many potential challenges.

Kathy Donovan
Kathy Donovan
Senior Compliance Counsel, Insurance Compliance
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