Division of Insurance Annual Report, 2001

212 Pages·2002·11.8 MB·English

by  Massachusetts. Division of Insurance.

Commonwealth of Massachusetts
Division of Insurance
2001
ANNUAL REPORT
State Library
of Massachusetts
State House,
Boston

COMMONWEALTH OF MASSACHUSETTS
Office of Consumer Affairs and Business Regulation
DIVISION OF INSURANCE
One South Station •Boston, MA 02110-2208
[phone] •FAX[phone]
TTY/TDD(617)521-7490
http://www.state.ma.us/doi
JANE SWIFT JENNIFERDAVISCAREY
GOVERNOR DIRECTOR.CONSUMERAFFAIRS
ANDBUSINESSREGULATION
LINDARUTHARDT
COMMISSIONEROFINSURANCE
February25, 2002
To the General Court and the People ofthe Commonwealth:
In this annual report you will find information on the work of the Division of Insurance staff
duringthe preceding calendaryear. Here are some ofthe highlights.
• The Bureau of Managed Care completed the process of accrediting and licensing the
Commonwealth's managed care organizations and health maintenance organizations for
the first time. This review included consumer disclosures, provider contracts and
managed care systems.
• The Consumer Service staffrecovered more than $3 million for consumers. Actions by
staffinvestigators and enforcement counsel resulted in more than 60 license revocations
and over $400,000 in fines, fees and restitution.
• A new on-line agent license renewal system was made accessible to insurers. It provides
immediate notification to the Division ofagent renewals, saving time and administrative
costs. More than 1,200 insurance companies throughout the U.S. are now able to manage
the renewal oftheir estimated 160,000 insurance agent appointments.
• The State Rating Bureau became one of the first insurance regulatory agencies in the
nation to accept electronic policy form and rate filings for all regulated lines. The
Division simultaneously introduced a web-based checklist system to help insurers and
staff verify that products meet the requirements of Massachusetts law. Product review
within the Division has been reduced to a 30-45 day timeframe. Acceptable products are
now available to consumers in record time and with more certain protection.
• The Division's mission to monitor the solvency ofits domestic insurers was heightened
following the September 11th attacks on the nation. Fortunately, no Massachusetts
domestic insurer reported sustaining losses great enough to impair its operations.
The availability and affordability ofproperty and casualty insurance that began to erode in early
2000 continued to erode throughout 2001. In addition to the significant claims arising from the
i
363M3
goo September 11th events, investment performance, claims from risks that were either improperly
underwritten or priced, and lessened ability by insurers to purchase affordable reinsurance all
contributed to changes in the market.
Currently insureds may find, through no fault of their own, that their policies may not be
renewed with identical coverage, or for the same price. Consumers ofinsurance will need to be
all the more attentive to minimizing their exposures. Successful brokers and agents will have to
be all the more diligent in making sure that underwriters are aware ofthe attractiveness oftheir
customers' business and in helping them search for appropriate coverage. Insurers need to be all
the more prudent as they invest. Insurance regulators, such as the Division of Insurance, will
need to remain vigilant in their solvency monitoring, including ensuring that rates are actuarially
supportable.
The staff at the Division of Insurance continues to deliver good value to the citizens of
Massachusetts. Because their work is so varied, it is never possible to summarize all oftheir
accomplishments in this letter. The report that follows discusses their work, and I am sure that
as you read it, you will be proud oftheir efforts on behalfofthe citizens ofMassachusetts. As
always, Iwelcome yourquestions and comments concerning this agency's regulatoryduties.
Sincerely,
Linda L. Ruthardt
CommissionerofInsurance
Division ofInsurance
Table of Contents
&
Financial Surveillance Company Licensing 1
Financial Examination 1
Market Conduct 5
&
Special Investigations Enforcement 6
Consumer Service 7
Board ofAppeal on Motor Vehicle
&
Liability Policies Bonds 8
State Rating Bureau 10
Administration 13
&
Hearings Appeals 14
Office ofthe General Counsel 15
Management Information Systems 16
&
Agents Brokers Licensing 17
&
Acts, Regulations Bulletins 18
Automobile Damage Appraiser Board 27
Appendices
2001 Annual Report
Division ofInsurance
1
&
Financial Surveillance
Company
Licensing
Financial Surveillance monitors the financial solvency of domestic and
foreign (domiciled in another state) insurance companies. There are
currently over 1,350 insurance companies licensed or authorized to transact
insurance business in the Commonwealth. Included in this number are life,
&
accident and health insurers, property casualty insurers, health
maintenance organizations, fraternal benefit societies, title insurers, surplus
lines insurers and reinsurers.
The Company Licensing staffis responsible for the review and processing of
all applications from insurance companies seeking to obtain or amend
licenses to transact insurance business in the Commonwealth. During 2001,
twenty-seven insurance companies were newly licensed and twenty-four
companies received approval to amend their licenses to sell additional lines
ofinsurance.
&
The Financial Surveillance Company Licensing staff also processes
license certifications, analyzes annual statement filings and manages other
revenue collections that resulted in approximately $480,000 in collected
revenue in 2001.
Financial Examination
Examinations
Financial Examination plays a vital role in monitoring the solvency of
insuring organizations chartered in Massachusetts, especially through on-site
examinations of domestic licensees. In 2001, Massachusetts was the
domicile offifty-eight property/casualty insurers, eighteen life, accident and
health insurers, two title insurance companies, eleven health maintenance
organizations, three lodge fraternal organizations, three medical service
corporations, twenty-six workers' compensation self-insured groups, a
2001Annual Report
Division ofInsurance 2
number of residual market pools, (e.g., FAIR Plan and Commonwealth
Automobile Reinsurers), and over two hundred fraternal benefit societies.
The statutory requirement for the Division to examine most insurance
companies is every five years, two years for health maintenance
organizations, three years for self-insured workers' compensation groups,
three years for medical service corporations, (e.g., Blue Cross/Blue Shield of
Massachusetts), and three years for fraternal organizations. The examination
schedule may be accelerated ifregulatory needs arise.
In 2001, the Division staff completed examinations of thirty-three insuring
organizations including twenty-one property/casualty insurers, five life
insurers, two managed care organizations, one medical service corporation
and one lodge fraternal organization. These companies produced $14 billion
in premium nationwide, including over $6.8 billion in Massachusetts. Staff
also completed special purpose examinations of seven managed care
organizations to evaluate their premium rate setting processes. Examinations
were also conducted ofthirty-six fraternal benefit societies. Thirty insurance
examinations were in progress at year's end, representing $8.5 billion in
premium nationwide and $7.1 billion in Massachusetts.
Revenues
Companies other than fraternal benefit societies undergoing examination by
Division employees are charged $220.00 per day per examiner plus
expenses. For the fiscal year ended 2001, revenues were $746,000.
Special Brokers Tax Collection
The Division collects state taxes on the excess and surplus lines business
written by special brokers licensed in Massachusetts. Collections in calendar
year 2001 totaled $9.5 million.
2001Annual Report
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Division ofInsurance 5
Market Conduct
Market Conduct includes Consumer Service and Special Investigations and
Enforcement. In 2001, its responsibilities and progress included:
• The initiation of 21 targeted market conduct examinations concerning
certain schedule credit rating programs for Massachusetts workers'
compensation policies;
• The completion of 16 targeted market conduct examinations;
• The continued work on targeted market conduct examinations involving
public fire loss adjusters and workers' compensation insurance rating;
• The continued participation in multi-state market conduct examinations
concerning credit disability insurance and race-based and/or low face
value life insurance sales;
• Negotiating settlement of enforcement cases and preparing and
presenting enforcement cases at administrative hearings. These efforts
resulted in approximately a 26% increase in license revocations, a 15%
increase in cease and desist orders and a 13% increase in cases closed
with enforcement action from calendar year 2000;
• Performing substantive review of domestic insurer procedures designed
to ensure compliance with the federal Violent Crime Control and Law
Enforcement Act of 1994;
• Receiving approval from the Massachusetts Criminal History Systems
Board to receive tape matches for criminal offenderrecord information of
licensees and applicants for licensure;
• Attended market conduct seminars and insurance fraud training programs
held by the National Association of Insurance Commissioners, the
Insurance Fraud Bureau of Massachusetts and the Association of
Certified Fraud Examiners.
2001Annual Report