A performance audit of the Department of Insurance consumer complaint function

              STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
A PERFORMANCE AUDIT
OF THE
DEPARTMENT OF INSURANCE
CONSUMER COMPLAINT FUNCTION
DECEMBER 1980
A REPORT TO THE
ARIZONA STATE LEGISLATURE
RE PORT 80- 6
DOUGLAS R. NORTON. CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
December 5, 1980'
Meinbers of t h e Arizona L e g i s l a t u r e
The Honorable Bruce B a b b i t t , Governor
Transmitted nerewith is a r a p o r t o f t n e Auditor General, A Perforrnance
Audit of tnt: 3epartment of I n s u r a n c e , Consumer Complaint Function. This
r e p o r t is i n response t o Senate B i l l 1078 of t h e 34th l e g i s l a t u r e , Second
S e g u l a r S e s s i o n .
The blue p s s e s p r e s e n t a summary of t h e r e p o r t ; a response from t h e
D i r e c t o r of Insurance is found on t h e yellow pages p r e c e d i n s t h e
append i c e s .
My s t a f f an3 I xi11 be pleased t o d i s c u s s o r c l a r i f y items i n t h e r e p o r t .
R e s p e c t f u l l y s u b m i t t e d ,
Douglas 3. Norton
Auditor Gensral
S t a f f : Gerald A. S i l v a
d i l l i a m Tnomson
J e r r y Xills
Peter F r a n c i s
Enclosure
LEGISLATIVE SERVICES WING SUITE 200 STATE CAPITOL PHOENIX. ARIZONA 85007 255- 4385
O F F I C E OF THE AUDITOR GENERAL
A PERFORMANCE AUDIT OF THE
DEPARTNEMT OF INSURANCE
CONSUMER COMPLAINT FUNCTION
A REPORT TO THE
ARIZONA STATE LEGISLATUSE
REPORT 80- 6
TABLE OF CONTENTS
Page
INrRODUCTION AXD BACKGROUND
FINDINGS
FINDING I
Tne Department of Insurance g e n e r a l l y has implemented
t n e recommendations of Report No. 79- 4 r e l a t i n g t o
consumer complaints. However, complaint d a t a is still
not used t o monitor a g e n t s and i n v e s t i g a t o r s do not
document a l l c o m p l a i n t s r e c e i v e d .
CONCLUSIONS
RECOMMENDATIONS
FINDING I1
I n some a r e a s t h e Department of Insurance has
gone beyond recommendations i n t h e previous a u d i t
t o improve r e g u l a t i o n of a g e n t s and companies and
t o a s s i s t consumers. More agent d i s c i p l i n a r y
h e a r i n g s a r e n e l d , more market c o n d u c t e x a m i n a t i o n s
of companies a r e made and a s p e c i a l a d v i s o r y
committee has been appointed t o c o n t r o l abuses i n
t h e s a l e of h e a l t h i n s u r a n c e t o t h e e l d e r l y .
FINDING 111
A d d i t i o n a l changes a r e needed i n l e g i s l a t i o n t o
a d d r e s s t h e consumer complaint f u n c t i o n e f f e c t i v e l y .
CONCLUSLON
RECOMMENDATIONS
FINDING IV
Scraening procedures a r e needed t o f r e e i n v e s t i g a t o r s '
time f o r in- depth i n v e s t i g a t i o n s .
CONCLUSION
NRITTEN RESPONSE TO THE AUDITOR GENERAL'S REPORT
- Page
2 1
APPENDIX
The Oyfice of t h e A u d i t o r G e n e r a l h a s e v s l u a t e d t h e consumer c o n p l a i n t
p r o c e s s e s and procedures of t h e Department o f Insurance. Consumer
complaint proc2sses dere reviewed p r e v i o u s l y i n t h e A u d i t o r G e n e r a l Reporc
No. 79- 4, A Perforgance Audit o f t n e Arizona Department of I n s u r a n c e .
Durlng our review, we found t h e Department nas taken a c t i o n t o i n c r e a s e
public awareness of its complaint s e r v i c e s . Also, t h e Department has
developed and a n a l y z e d c o m p l a i n t d a t a a g a i n s t companies and nas both
p u ~ l i c i z e d t h e d a t a and used t h e d a t a f o r r e g u l a t o r y a c t i o n . We a l s o
found, however, t h e Department is s t i l l noc monitoring t o t a l c o n p l a i n t s by
agent and ilepartment i n v e s t i g a t o r s have been p r o c e s s i n g many complaints
i n f o r m a l l y and not documenting s u c h c o m p l a i n t s . Ne recommend a g a i n t h a t
t h e Department develop and use d a t a on t o t a l complaints a g a i n s t a g e n t s an3
t h a t t h e Department i n v e s t i g a t o r s document a l l complaints processed.
We found t h e Department has gone beyond many of t h e recommendations i n t h e
previous a u d i t t o improve r e g u l a t i o n of a g e n t s and companies and t o assist
consumers. More agent d i s c i p l i n a r y h e a r i n g s a r e h e l d , more market conduct
e x a m i n a t i o n s o f companies a r e made and a s p e c i a l a d v i s o r y committee has
been appointed t o h e l p c o n t r o l abuses i n t h e s a l e o f h e a l t n i n s u r a n c e t o
t h e e l d e r l y .
Despite t n e a c t i o n s t h e Department has taken t o a d d r e s s consumer
c o m p l a i n t s , we found l e g i s l a t i v e changes a r e needed t o e n a b l e t h e
Department t o a d d r e s s consumer complaint f u n c t i o n s more e f f e c t i v e l y . We
recommend Arizona adopt t h e p r o v i s i o n s o f t h e National A s s o c i a t i o n of
Insurance Comlnissioners ( NAIC) Unfair C l a i m s S e t t l e m e n t P r a c t i c e s Act and
t h e accompanying r e g u l a t i o n .
F i n a l l y , our review determined t h a t s c r e e n i n g procedures a r e needed t o
f r e e i n v e s t i g a t o r s ' time f o r more in- deptn i n v e s t i g a t i o n s . Nuch of t n e
i n v e s t i g a t o r s ' time is s p e n t handling r o u t i n e , i n f o r m a t i o n a l phone c a l l s .
We found t n e Attorney G e n e r a l ' s O f f i c e has developed a system t o s c r e e n
c a l l s and f r e e its f i n a n c i a l fraud i n v e s t i g a t o r s from such c a l l s . ' de
recommend a s i m i l a r system be developed i n t h e Depar~ ment of I n s u r a n c e .
INTRODUCTION AND BACKGROUND
The Of'fice of t h e A u d i t o r G e n e r a l has e v a l u a t e d t h e consumer complaint
p r o c e s s e s and p r ~ c e d u r e s of t h e Department o f i n s u r a n c e i n response t o a
June 10, 13d0, r e s o l u t i o n o f t h e J o i n t L e ~ i s l a t i v e Budget Committee. This
e v a l u a t i o n was przpared under t n e a a t h o r i t y vested i n t h e A u d i t o r G e n e r a l
by Arizona Revised S t a t u t e s ( A. R. S.) 341- 1279 e t seq.
Consumer complaint p r o c e s s e s were reviewed p r e v i o u s l y i n t h e Auditor
S e n e r a l Reporc No. 79- 4, A Performance Audit o f t h e Arizona Department of
Insurance. That r e p o r t noted t h a t t h e consuiner complaint s e c t i o n of' t n e
Department of I n s u r a n c e a n n u a l l y r e c e i v e s and p r o c e s s e s between 4,000 and
5,000 w r i t t e n c o m p l a i n t s a b o u t i n s u r a n c e companies and a g e n t s and t h a t t n e
Departnent w s s ~ e n e r a l l y e f f e c t i v e i n its a c t i o n s with i n d i v i d u a l
complaints. The r e p o r t a l s o noted, however, t h e Department needed t o
i n c r e a s e p u b l i c awareness of its s e r v i c e s and t a k e s e v e r a l a c t i o n s t o use
aggregate compiaint d a t a t o r e g u l a t e companies and a g e n t s e f f e c t i v e l y .
The o b j e c t i v e s o f t h e e v a l u a t i o n were t o :
1. Determine i f t h e recommendations i n Report No. 79- 4 have Peen
implemented.
2. Determine i f t h e Department has implemented procedures t o improve
its complaint p r o c e s s e s i n a d d i t i o n t o t h o s e recommended i n
Zeport No. 79- 4.
3. determine what cnanges, i f any, a r e necessary f o r t h e Department
t o perform its f u n c t i o n s e f f e c t i v e l y i n handling consumer
complaints.
Tne O f f i c e of t h e A u d i t o r G e n e r a l e x p r e s s e s g r a t i t u d e t o t h e D i r e c t o r of
t h e Depsrtment of Insurance and n i s s t a f f f o r t h e i r c o o p e r a t i o n ,
a s s i s t a n c e a n j c o n s i d e r a t i o n d u r i n g t h e c o u r s e o f t h e a u d i t .
FINDING I
THE DEPAATMSNT 3F INSURANCE GEfJZRALLY iiAS I~~ PLLI. IE~\ JTETDH Z RECOML$ ENDATLONS
OF RZP3Rr NO. 79- 4 RELA'I'LNG ' TO CONSUMER COMPLAIUTS. dOvJEVER , COMPLAINT
DATA IS S ~ I L LNO T USED TO PIONITOR AGENrS AND Ii\ JVdSTIOATORS DO NOT DOCUllENT
ALL CO;. IPLAINTS ZECEIVED.
A major f u n c t i o n o f t h e Department o f Insurance is t h e i n v e s t i g a t i o n and
r e s o l u t i o n of p u b l i c complaints a ~ a i n s t i n s u r a n c e companies and a g e n t s .
Tne Department nas seven* f u l l - t i n e employees t o i n v e s t i g a t e and process
public complaints. The consumer complaint s e c t i o n of t h e Department
annually r e c e i v e s and p r o c e s s e s between 4,000 and 5,000 w r i t t e n complaints
about i n s u r a n c z companies and a g e n t s .
The A u d i t o r G e n e r a l R e p o r t No. 79- 4 on t h e Department of Insurance noted
t h a t improvements were needed i n t h e complaint- handling f u n c t i o n i n t h a t :
1) t h e p u b l i c was g e n e r a l l y unaware t h a t consumer complaint s e r v i c e s were
a v a i l a b l e t o them, and 2) t h e Department f a i l e d t o use complaint d a t a t o
r e g u l a t e companies and a g e n t s . It was recommended t h a t t h e Department:
1. Actively seek t o p u b l i c i z e its complaint s e r v i c e s .
2. Develop and p u b l i c i z e d a t a on t h e number of cornplaincs r e c e i v e d
by coinpanies f o r each $ 100,000 o f premium volume.
3. Use complaint d a t a t o determine which co~ npanies should r e c e i v e
market conduct examinations.
4. Monitor t o t a l c o i n p l a i n t s by agent and i n v e s t i g a t e a g e n t s
r e c e i v i n g nore than a s p e c i f i e d number of complaints.
* The Department has f i v e i n v e s t i g a t o r s i n Phoenix and two i n Tucson.
We found t h e Department has implemented t h e recommended p r o c e d u r e s except
t n a t t o t a l c o r n p l a i n t s a g a i n s t a g e n t s are n o t monitored o r used as a b a s i s
f o r i n v e s t i g a t i o n s . I n a d d i t i o n , we found t h a t i n v e s t i g a t o r s now handle
an unltnawn number of c o m p l a i n t s i n f o r m a l l y and d o n o t document a l l
c o m p l a i n t s r e c z i v e d .
The D e p a r t z e n t o f I n s u r a n c e Has Taken Action t o
I n c r e a s e P u b l i c Awareness of t h e Department's S e r v i c e s
The performance a u d i t r e p o r t on t h e Department of I n s u r a n c e concluded t h a t
t h e p u b l i c is g e n e r a l l y unaware of t h e Department's consumer complaint
s e r v i c e s . It was recommended t h a t t i l e Department a c t i v e l y se2k t o
p u b l i c i z e its complaint s e r v i c e s .
The Department h a s made e f f o r t s t o make t h e p u b l i c aware of its s e r v i c e s
tnrough t e l e v i s i o n and r a d i o c o v e r a g e , news releases and p u b l i c speaKing
engagements. We found t h e s e e f f o r t s have i n c r e a s e d p u b l i c awareness of
t h e s e r v i c e s i n t h a t more people f i l i n g c o m p l a i n t s w i t h t h e Department now
l e a r n about t h e complaint s e r v i c e s through t h e news media r a t h e r t h a n by
word of mouth. Report No. 79- 4 noted t h a t 55 p e r c e n t of t h e c o m p l a i n a n t s
l e a r n e d of Department s e r v i c e s by word of mouth while f e d e r than t e n
p e r c e n t l e a r n e d o f them through t h e news media. I n a follow- up survey of
1980 c o m p l a i n a n t s we found more t h a n 42 p e r c e n t of them had been made
aware o f t h e Department's s e r v i c e s through t h e news media.
T e l e v i s i o n Coverage
During t n e f i r s t s i x months o f 1980, t h e Department of I n s u r a n c e used
t e l e v i s i o n s e v e r a l t i m e s t o p u b l i c i z e its complaint s e r v i c e s as sh3wn i n
t h e f o l l o w i n g c h a r t .
T e l e v i s i o n Coverage Regarding t h e
Department's Complaint S e r v i c e s From
January 1, 1980 t o June 30, 1930
T e l e v i s i o ~ ?
S t a t i o n Date Time S u b j e c t Auaience
KPNX- 12 4/ 28-?/ 2 5 PM " P o l i c i e s and Promises"
( Phoenix) ( f i v e p a r t s ) 93 ,000*
KPNX- 12 6/ 1 4- 5 PM A one- hour follow- up on
( Phoenix) I f P o l i c i e s and Promisesll 34,000
KTVK- 3 7/ 3 6: 30 AiY lfGenerationslf - a segment on
( Phoenix) Medicare supplemental i n s u r a n c e 10,000
KTVK- 3 6/ 11 9: 30 PM Premium comparisons
( Phoenix)
XTVK- 3 7/ 24 6 PM " The Dread Disease
( Phoenix) CoverageH - a program on
cancer p o l i c i e s 55,0002
KVOA- 4 5/ 7- 5/ 11 5 PM " P o l i c i e s and Promises"
( Tucson) ( f i v e p a r t s ) 65,000*
Estimated viewing audience 310.000
The program " P o l i c i e s and Promises, I1 on a s u b j e c t o f t e n r e f e r r e d t o a s
" the S t i n g , " proved t o be p a r t i c u l a r l y e f f e c t i v e i n i n c r e a s i n g p u b l i c
awareness o f f r a u d u l e n t i n s u r a n c e p r a c t i c e s and t h e D e p a r t m e n t ' s c o m p l a i n t
s e r v i c e s . The program was i n i t i a t e d j o i n t l y by XPNX-' rV, Channel 12 i n
Phoenix and t h e Department of I n s u r a n c e . The s t a t i o n s e t up a hidden
camera i n an e l d e r l y l a d y ' s home. The woman c a l l e d 12 i n s u r a n c e a g e n t s
dho sold Medicare supplements.** The f i l m showed e l e v e n a g e n t s who
misrepresented Medicare supplemental i n s u r a n c e . The D i r e c t o r o f t h e
De, partment of Insurance appeared i n t h e f i l m t o e x p l a i n i m p l i c a t i o n s of
t h e f ' a l s e clairns by a g e n t s . He a l s o appeared, a l o n g w i t h a U n i v e r s i t y of
Arizona p r o f e s s o r and t n e p r e s i d e n t of t n e Arizona c h a p t e r , L i f e
Underwriters A s s o c i a t i o n , on a one- hour follow- up program, t o respond t o
q u e s t i o n s from t h e viewing public.**,%
* These programs were a i r e d more t h a n once. The nunDer i n d i c a t e s t h e
audience s i z e f o r - one segment.
** The consumer complaint s e c t i o n of tna Department of Insurance provided
t h e a g e n t s f names.
*" WNX-' rV i n d i c a t e d t h a t more t h a n 100 people telepnoned, an unusually h i z h
number f o r t n i s type of program.
Radio Coverage
Since January 1980, t h e D i r e c t o r n a s nad v a r i o u s r a d i o i n t e r v i e w s covering
t n e following s u b j e c t s :
1. Open c o m p e t i t i o n ,
2. The r a t i n g l a w ,
3. The Unfair Claims S e t t l e m e n t P r a c t i c e Act,
4. The s a l e o f Medicare supplemental p o l i c i e s , and
5. The r s g u l a t i o n of p u b l i c a d j u s t e r s .
News Releases
The Department has made p u b l i c awareness e f f o r t s i n t h e a r e a of nexs
r e l e a s e s . Following is a list of 1980 news r e l e a s e s r e s u l t i n g i n a r t i c l e s
published i n The Arizona Zepublic.*
Date S u b j e c t
4/ 23 Formation o f a Senior C i t i z e n H e a l t h I n s u r a n c e Advisory
Committee was announced.
4 / 28 The c o n c l u s i o n of " t h e S t i n g " o p e r a t i o n was announced and
d e s c r i b e d b r i e f l y .
5/ 07 Announcement was made o f f o u r agent d i s c i p l i n a r y h e a r i n g s a s
a r e s u l t of t h e Department's IfStingff o p s r a t i o n and t h e
withdrawal of approval from C h r i s t i a n H e r i t a g e ' s Medicace
supplemental p o l i c y .
The adoption of a Department procedure t o r e g u l a r l y govern
t h e s a l e of Medicare supplemental p o l i c i e s was announced.
A premium r a t e comparison of 28 companies f o r a u t o i n s u r a n c e
was p r i n t e d .
Complaint r a t i o s were p u b l i c i z e d f o r 38 companies w r i t i n g
p e r s o n a l l i n e s of i n s u r a n c e ( a u t o , home, f i r e on p r i v a t e
d w e l l i n g s ) .
An e r r o r i n cne t o t a l p o l i c i e s and complaint r a t i o f o r
Farmers Insurance Company was c o r r e c t e d .
See Appendix f o r c o p i e s of t h e s e news r e l e a s e s .
* Daily c i r c u l a t i o n of The Arizona Republic am3 The Pnoenix G a z e t t e is
346,514.
Public Sp3aki. n~ Enga5ements
The Department has made e f f o r t s t o i n c r e a s e p u b l i c awdreness by providing
speakers a t p u b l i c a e e t i n g s . During 1979- 80, t h e D i r e c t o r , A s s i s t a n t
D i r e c t o r and consumer complaint i n v e s t i g a t o r s have spoken a t 14 p u b l i c o r
consumer group meetings.
A t t h e t i m e o f o u r p r e v i o u s r e p o r t , we found t h e r e were few puDlic
a d d r e s s e s made by t h e Department's s t a f f arid t h a t speeches were made
p r i m a r i l y t o i n s u r a n c e i n d u s t r y a u d i e n c e s , n o t p u b l i c groups.
The Department Has Developed and
P u b l i c i z e d Complaint R a t i o Data
Report No. 79- 4 noted t h a t developing and p u b l i c i z i n g complaint r a t i o d a ~ a
on i n s u r a n c e c3mpanies can provide a powerful r e g u l a t o r y t o o l i n t h a t
p u b l i c d i s c l o s u r e of complaint d a t a provides an added i n c e n t i v e f o r
companies t o reduce t h e number of and t o r e s o l v e complaint;. It was
recommended t h a t t h e Department develop and p u b l i c i z e d a t a on companies
r e g a r d i n g t h e number of complaints f o r each $ 100,000 of premium volume.
The Department subsequently determined t h a t d a t a based on t n e nurnoer of
complaints f o r eacn 1,000 p o l i c i e s i n f o r c e would be more o b j e c t i v e tnan
on prenium volume, because of t h e s k e ~ i n z e f f e c ~ s of l a r g e commercial
p o l i c i e s . Using t h a t b a s i s , t h e Department developed coinplaint r a t i o d a t a
by p e r s o n a l l i n e s of i n s u r a n c e sucn a s a u t o , norneowner an3 f i r e f o r 41
companies t h a t x r i t e approximately 95 percent o f p e r s o n a l l i n e s i n s u r a n c e
i n Arizona. It r e l e a s e d tile d a t a on J u l y 2, 1980. It is i n t e r e s t i n g t o
note t h a t th? r a t i o of complaints f o r e a c n 1 , 0 0 0 p o l i c i e s ranged from 0.25
t o 15.71, i n d i c a t i n g significant d i f f e r 3 n c e s i n p o l i c y n o l d e r s a t i s f a c t i o n
with companies. ( Tne complaint r a t i o d a t a is included i n t h e Appendix.)
The Department p l a n s t o r e l e a s e similar complaint r a t i o d a t a f o r h e a l t h
i n s u r a n c e coinpanies at a l a t e r d a t e .
Complaint Ratio Data Is Used t o
Determine Market Conduct Examinations
Report No. 79- q a l s o noted that t h e Department d i d n o t u s e consumer a
complaint d a t a t o s e l e c t companies f o r market conduct examinations. A s a
r e s u l t , sucn examinations, which a r e designed t o determine how companies
t r e a t p o l i c y h o l d e r s , were n o t conducted on t h o s e coapanies which had t h e
h i g h e s t r a t i o s of complaints t o i n s u r a n c e i n f o r c e . It was recommended
t h a t t h e Department use such complaint d a t a t o s e l e c t companies f o r n a r k e t
conduct examinations o r p o s s i b l e i n v e s t i g a t i o n .
According t o t h e D i r e c t o r o f I n s u r a n c e cornplaint r a t i o d a t a w i l l oe used
t o s e l e c t companies f o r market conduct examinations. The D i r e c t o r has
e s t a b l i s h e d t h a t any company with a r a t i o of one o r more complaints f o r
each 1,000 p o l i c i e s is a c a n d i d a t e f o r a market conduct examination.
Complaint Data Is Not Used
t o Monitor and Regulate Agents
Report No. 79- 4 s t a t e d t h a t Arizona d i d n o t f o r m a l l y monitor t o t a l
c o m p l a i n t s a b o u t a g e n t s , d e s p i t e t h e f a c t t h a t it is r a r e f o r i n s u r a n c e
a g e n t s i n Arizona t o have any complaints f i l e d a s a i n s t them. During 1978,
l e s s t h a n f o u r p e r c e n t o f t h e a g e n t s i n Arizona had a complaint f i l e d
a g a i n s t them, and only .08 p e r c e n t had t h r e e o r more. However, d u r i n g I
t h a t same year 14 a s e n t s r e c e i v e d t h r e e o r more c o m p l a i n t s , of which only
two were brought b e f o r e formal h e a r i n g s .
The Department s t i l l has not e s t a b l i s h e d a procedure t o monitor t o t a l
complaints a g a i n s t a g e n t s . During our 1980 review, we i d e n t i f i e d 12
a g e n t s who r e c e i v e d t h r e e o r more complairits d u r i n g f i s c a l y e a r 1979- 80.
One of tnem had t e n complaints. However', no procedure had been
e s t a b l i s h e d t o i d e n t i f y and review t h e conduct of t h e s e a g e n t s t o
determine i f i n v e s t i g a t i o n s and h e a r i n g s should be conducted.
We a l s o found t h e Department does not maintain a copy o f e a c h c o m p l a i n t
a ~ a i n s t an agent i n t n a t a g e n t ' s f i l e . Some complaints a r e placed i n a
miscellaneous f i l e , and o t h e r s a r e placed i n t h e f i l e of t h e a g e n t ' s
company. Thus, 3. review o f a n a g e n t ' s f i l e may not d i s c l o s e how many and
what t y p e s of complaints have been f i l e d a g a i n s t him. Such i n f o r m a t i o n
may be v i t a l f o r i n v e s t i g a t i v e and enforcement purposes.
I n v e s ~ i s a t o r sD o Not Document
A l l Complaints Received
The Department of Insurance r e c e i v e s approximately 24,000 telephone c a l l s
a y e a r , t n e majoricy of which a r e handled by t h e consumer complaints
s e c t i o n . Altnough many of t h e s e c a l l s a r e r o u t i n e o r simply seek
i n f o r m a t i o n , o t n e r s a r e consumer complaints. irJe found t n z i n v e s t i g a t o r s
nave changed procedures s i n c e Report No. 79- 4, and now h a n d l e t e l e p h o n e
complaints r a t h e r than r e q u i r e t h a t complaints De I n w r i t i n g . F u r t h e r , we
found many of t n e t e l e p h o n e c o m p l a i n t s a r e processed i n f o r m a l l y by t h e
i n v e s t i g a t o r s , and no record is made of them.
Although r e c e i v i n g and p r o c e s s i n g c o m p l a i n t s by telephone may reduce
paperwork f o r i n v e s t i g a t o r s and inconvenience f o r consumers, f a i l u r e t o
document such complaints may produce two u n d e s i r a b l e consequences. One is
t h a t t h e r e is no way t o determine t h e t o t a l number of complaints
processed. Such i n f o r m a t i o n is important f o r measuring p u b l i c awareness
of consumer s e r v i c e s , a n a l y z i n g t r e n d s i n complaint d a t a and p r o j e c t i n g
workloads. A second is t h a t f a i l u r e t o record a l l complaints may produce
a s i g n i f i c a n t b i a s i n t h e Department's u s e o f c o m p l a i n t - r a t i o d a t a t o
r e g u l a t e companies and a g e n t s . If t h e p r a c t i c e of' not documenting each
complaint is c o n t i n u e d , complaint r a t i o s developed by t h e Department w i l l
be s u b j e c t t o s e r i o u s q u e s t i o n as t o t h e i r completeness, r e l i a b i l i t y ,
v a l i d i t y an3 f a i r n e s s .
CONCLUSIO: 4S
I. Altnough t n e Department h a s g e n e r a l l y implemented t h e recommended
procedures of Report No. 79- 4, t h e Department can do s t i l l more
t o i n c r e a s e its r e g u l a t o r y e f f e c t i v e n e s s by using complaint d a t a
t o rnonitor agent conduct.
2. F a i l u r e t o document every complaint j e o p a r d i z e s t h e i n t e g r i t y or"
t n e c o m p l a i n t - r a t i o d a t a developed by t h e Department and r e s u l t s
in incomplete d a t a f o r management purposes.
3. F a i l u r e t o maintain a copjr of each complaint a g a i n s t an agent i n
t n e a g e n t ' s f i l e may impair t h e Department's a b i l i t y t o
i n v e s t i s a t e and r e g u l a t e agent conduct.
It is reco: ninend e3 t h a t :
1. Tne Department use d a t a on t o t a l complaints about a g e n t s t o
monitor and r e g u l a t e agent conduct.
2. The Department document e v e r y c o m p l a i n t r e c e i v e d , i n c l u d i n g
telephone coinplaints.
3. The Department p l a c e a copy of each complaint a g a i n s t a n a g e n t i n
t h a t a g e n t ' s f i l e .
FINDING I1
I N SOL~ EA REAS THE DEPARTMENT OF INSURANCE HAS ZONE BEYO! kID RECOMMENDATIONS
I N THE PREVIOUS AUDIT TO INPROVE REGULATION OF AGENTS AND COMPANIES AND TO
ASSIST CONSUMERS. XORE AGENT DISCIPLINARY HEARINGS ARE I- IELD, i. 1ORE XAdKE'I'
CONDUCT EXAMINATIOilS OF COMPANIES ARE MADE AND A SPECIAL A D V I S O ~ ~ Y
COMMITTEE HAS BEEN APPOINTED TO CONTROL ABUSES I N THZ SALE OF HEALTH
INSURANCE TO THE ELDERLY.
The Department of Insurance is r e s p o n s i b l e f o r r e g u l a t i n g t h e conduct of
l i c e n s e d a g e n t s and companies a u t h o r i z e d t o t r a n s a c t b u s i n e s s i n Arizona.
Since our previous a u d i t , t h e Department has i n c r e a s e d r e g u l a t o r y a c t i v i t y
on agent and company misconduct. More a g e n t s a r e c a l l e d i n f o r formal
d i s c i p l i n a r y a c t i o n , and nore companies a r e reviewed through market
conduct examinations. I n a d d i t i o n , t h e D i r e c t o r h a s appointed a
ten- member advisory committee t o study ways t o c o n t r o l abuse i n t h e s a l e
of h e a l t h i n s u r a n c e t o t h e e l d e r l y .
The Numner of Agent Hearings Has I n c r e a s e d
The number of agent d i s c i p l i n a r y h e a r i n g s held monthly by t h e Department
of Insurance has i n c r e a s e d s h a r p l y s i n c e 1978. A s shown i n Table 1, 25
formal d i s c i p l i n a r y h e a r i n g s i n v o l v i n g a g e n t s were held d u r i n g t n e
seven- month period from January through J u l y 1980.
TABLE 1
NUMBER AND OUTCOME OF AGENT
DISCIPLINARY HEARINGS
License revoked
License suspended
Fined
License revoked/ suspended and f i n e d
No l i c e n s e a p p l i c a t i o n t o be accepted
No penalty
D i s p o s i t i o n unknown a t time o f a u d i t
TOTAL
January
through
J u l y 1980
By c o n t r a s t , 13 agent d i s c i p l i n a r y h e a r i n g s were held i n 19' 79, and eleven
i n 1978.
S i m i l a r l y , d i s c i p l i n a r y a c t i o n s a s a i n s t a g e n t s a l s o nave i n c r e a s e d . For
example, only e i g h t a g e n t s had t h e i r l i c e n s e s suspended o r revoked, O r
bfere f i n e d , a s a r e s u l t of formal h e a r i n g s i n 1978; however, 16 a g e n t s
were s u b j e c t e d t o such d i s c i p l i n e d u r i n g t n e f i r s t seven months of 1980.
Most of t n e a g e n t s c a l l e d i n and d i s c i p l i n e d by t n e Department i n 19d0 had
misrepresented b e n e f i t amounts, l e v e l s o f c o v e r a g e o r o t h e r policy
p r o v i s i o n s involved i n t h e s a l e of i n s u r a n c e . M i s r e p r e s e n t a t i o n and fraud
i n t h e s a l e of i n s u r a n c e p o l i c i e s t o t h e public have been e s t a b l i s h e d by
tne Departnent a s top p r i o r i t i e s f o r i n v e s t i g a t i o n and d i s c i p l i n a r y a c t i o n .
The Number o f d a r k e t Conduct Examinations Has I n c r e a s e d
Tne Department of Insurance makes market conduct examinations t o review
i n s u r a n c e company p r a c t i c e s i n such a r e a s a s s a l e s and a d v e r t i s i n g ,
m a r k e t i n g , c l a i m s - h a n d l i n g and t r e a t m e n t o f p o l i c y h o l d e r s . Such
examinations may be conducted e i t h e r i n c o n j u n c t i o n with t h e r e g u l a r
f i n a n c i a l examination of t h e company o r as a r e s u l t of consumer complaints.
A t t h e t i n e of our previous a u d i t , t h e Department of Insurance had made
e i g n t market conduct examinations a s a r e s u l t of consumer c o m p l a i n t s . A s
shown i n Table 2 , t h e number of market conduct examinations made by t h e
Department i n c r e a s e d s i g n i f i c a n t l y i n 1979 and 1980. . ~
TABLE 2
NUiYBER OF MARKET CONDUCT EXAMINATIONS
INVOLVING CONSU36d COMPLAINTS CONDUCTED DURING
1978, 1379 AND THE FIHSr SIX IYONTHS OF 1980
Number of e x a n i n a t i o n s
January
through
June 1980
Two f u l l - t i m e s c a f f members c u r r e n t l y a r e a s s i g n e d t o make m a r k e t c o n d u c t
e x a m i n a t i o n s , a n i n c r e a s e o f one f u l l - t i m e p o s i t i o n o v e r 1978. I n
a d d i t i a n , t; io persons a s s i s t wita sucn e x a m i n a t i o n s p a r t - t i m e .
F i n a l l y , while naking a r e c e n t market c o n d u c t e x a m i n a t i o n of one of t h e
major i n s u r e r s i n Arizona, t h e Department of I n s u r a n c e expanded
s i g n i f i c a n t l y t n e amount and scope of examination a s cornpared t o p r e v i o u s
y e a r s . F u r t h e r , t h e Department now p l a n s t o release t o the p u b l i c t h e
r z s u l t s o f market conduct e x a m i n a t i o n s .
4dvisory Committee Appointed To Study Healtn Insurance Abuses
I n A p r i l 1980, t h e D i r e c t o r o f I n s u r a n c e a p p o i n t e d a ten- member S e n i o r
C i t i z e n ;- iealtn I n s u r a n c e Advisory Committee. The Committee is comprised
of both i n d u s t r y and p u b l i c r e p r e s e n t a t i v e s . Its purpose is t o provide
t h e Department w i t h recommendations r e g a r d i n g p u b l i c i n f o r m a t i o n programs,
r e g u l a t i o n s and l e s i s l a t i o n needed t o e l i m i n a t e and c o n t r o l a b u s e s and
d e c e p t i v e p r a c t i c e s involved i n t h e s a l e of n e a l t h i n s u r a n c e t o t n e
e l d e r l y .
The Committee met twice i n May 1980 t o o r g a n i z e and f o r m u l a t e its
a c t i v i t i e s . Two p u b l i c h e a r i n g s are t e n t a t i v e l y planned, one i n Phoenix,
t h e o t h e r i n Tucson, t o a l l o w s e n i o r c i t i z e n s t o d i s c u s s prooleins tney
have encountered i n h e a l t h i n s u r a n c e a r e a s . I s s u e s expected t o be r a i s e d
a t t h e h e a r i n g s i n c l u d e Medicare s u p p l e m e n t a l i n s u r a n c e , h o s p i t a l
indemnity p l a n s and c a n c e r p o l i c i e s .
After h e a r i n g t h e t e s t i m o n y , t h e Committee w i l l recommend a c t i o n t o remedy
i d e n t i f i e d problems. A s i m i l a r committee, e s t a b l i s h e d i n I l l i n o i s , made a
v a r i e t y of recornrnendations aimed a t p r o t e c t i n g t n e e l d e r l y from f r a u d u l e n t
s a l e s p r a c t i c e s and o t h e r a b u s e s .
CONCLUSION
I n a d d i t i o n t o implementing most of t h e recommenJations of Report No. 73- 4
r e z a r d i n s consumer c o m p l a i n t s , t n e Department of I n s u r a n c e h a s i n c r e a s e d
s i 5 n i f i c a n t l y lts d i s c i p l i n a r y h e a r i n g s and market conduct i n v e s t i g a t i o n s .
FINDING 111
ADDITIONAL CHANJSS ARE NEEDED I N LEGISLATION TO ADD2ZSS THE CONSU. 4E3
COMPLAINT FUNCTION EFFECTIVZLY.
Although t h e Department of Insurance has implemented most of t n e
recommendations i n Report No. 79- 4, a d d i t i o n a l changes a r e needed t o
i r l c r e a s e t h e Department's e f f e c t i v e n e s s i n its consumer- complaint
f u n c t i o n . Such charges i n c l u d e additional l e g i s l a t i o n t o r e g u l a t e u n f a i r
c l a i m s - h a n j l i n g p r a c t i c e s and t h e a u t h o r i t y t o f i n e companies i f tney
v i ~ l a t esu ch s t a t u t e s .
Tne D e ~ a r t m e n t of Insurance Needs A d d i t i o n a l L e g i s l a t i o n
t o S t r e n g t h e n Its Regulation of Unfair Claims- handling P r a c t i c e s
A s was noted i n Report No. 79- 4, Arizona h a s n o t enacted p r o v i s i o n s of t h e
N a t i o n a l A s s o c i a t i o n of Insurance Commissioners ( NAIC) model, Unfair
Claims S e t t l e m e n t P r a c t i c e s Act, and its accompanying r e g u l a t i o n . The Act
and r e g u l a t i o n e s t a b l i s h s t a n d a r d s r e l a t i n g t o m i s r e p r e s e n t a t i o n o f p o l i c y
p r o v i s i o n s , communication w i t h p o l i c y h o l d e r s , i n v e s t i g a t i o n and
s e t t l e m e n t of claims and o t h e r m a t t e r s which, i f v i o l a t e d ". . . with such
frequency as t o i n d i c a t e a g e n e r a l b u s i n e s s p r a c t i c e . . . " , c o n s t i t u t e an
u n f a i r company p r a c t i c e . Repeatsd v i o l a t i o n s of t h e Act could r e s u l t i n
d i s c i p l i n a r y a c t i o n by t h e Department of Insurance i f t h e model Act were
i n e f f e c t .
It appears t n a t such l e g i s l a t i o n s t i l l is needed i n Arizona because:
1. Although t h e Department h a s l i m i t e d s t a t u t o r y a u t n o r i t y t o
r e g u l a t e t n i s a r e a , claims- handling p r a c t i c e s continue t o be t n e
major s o u r c e s o f c o m p l a i n t s r e c e i v e d by t n e Department.
2. Nost s t a t e s which have enacted t n e Unfair Claims S e t t l e m e n t
P r a c t i 2 e s Act claim it is an e f f e c t i v e t o o l t o c o n t r o l and
r e g u l a t e company claims- handling p r a c t i c e s .
Arizona Lacks Authority t o Regulate
t h e : 4ost Freauent S o u r c e o f Consumer
Complaints: Claims- handling P r a c t i c e s
Under c u r r e n t law, t h e Department of Insurance has a u t h o r i t y t o a d d r e s s
company claims- nandling p r a c t i c e s i n two c i r c u m s t a n c e s o n l y :
1. " . . . i f t n e i n s u r e r u s u a l l y compels c l a i m a n t s under its p o l i c i e s
t o a c c e p t l e s s than t h e amount due tnem o r t o b r i n g s u i t a g a i n s t
it t o s e c u r e f u l l payment t h e r e o f . " [ A . R . S . $ 20- 220( 47)]
2. If an i n s u r e r f a i l s t o make a l i f e i n s u r a n c e s e t t l e m e n t within
two months a f t e r r e c e i v i n g proof of d e a t h . ( A . R . S . $ 20- 1215)
There is no p r o v i s i o n i n Arizona l a w a d d r e s s i n g company claims- handling
r e s p o n s i b i l i t i e s with regard t o communication with p o l i c y h o l d e r s ,
i n v e s t i g a t i o n of claims and d e l a y s i n h a n d l i n g c l a i m s . However, t h e s e
claims- handling p r a c t i c e s a r e t h e major sources of c o m p l a i n t s r e c e i v e d by
t h e Department. A computer a n a l y s i s of complaints f o r f i s c a l y e a r 1979- 80
r e v e a l e d t h a t 59 percent of a l l c o m p l a i n t s r e c e i v e d by t h e Department
involve claims- handling p r a c t i c e s . F u r t h e r , d e l a y s i n c l a i m s handling
account f o r n e a r l y one of f i v e consumer complaints. A review of
claims- handling c o m p l a i n t s r e v e a l e d t h a t many would c o n s t i t u t e v i o l a t i o n s
i f Arizona enacted t h e NAIC Act and t h e accompanying r e g u l a t i o n .
Unuer t h e NAIC Act and r e g u l a t i o n , i n s u r e r s a r e r e q u i r e d t o acknowledge
r e c e i p t o f a claim w i t h i n t e n working dsys and t o complete an
i n v e s t i g a t i o n of t h e claim w l t h i n 30 days i f r e a s o n a b l y p o s s i b l e . If
i n v e s t i g a t i o n s cannot be completed w i t h i n 30 d a y s , i n s u r e r s a r e r e q u i r e d
t o a d v i s e c l a i m a n t s a t 45- day i n t e r v a l s of t h e reasons t h e i n v e s t i g a t i o n
has not been completed.
I n reviewing claims- handling c o m p l a i n t s , we found t h a t some companies
seldom meet t h e ~ u i d e l i n e s e s t a b l i s h e d by t h e N A I C Act. For example, we
found i n s t a n c e s i n which i n s u r e r s d i d not acknowledge o r respond t o c l a i m s
f o r as long a s 180 days. Although such d e l a y s a r e e x c e p t i o n a l , most
companies do not appear t o respond w i t h i n t e n working days. An a n a l y s i s
of a sample o f c l a i m s r e v e a l e d t h a t t h e average time between a complaint
snd a company's response was 42 days.
Unfair C l a i m s - p r a c t i c e s Law
A ~ ~ e a Er fsf e c t i v e i n o t h e r S t a t e s
Txelve s t a t e s which have adopted t n e NAIC Unfair Claims S e t t l e m e n t
P r a c t i c e s Act o r s i m i l a r p r o v i s i o n s were c o n t a c t e d t o determine t h e
e f f e c t i v e n e s s of such a l a w . A s shown below i n s u r a n c e o f f i c i a l s i n nine
of t h e s t a t e s c o n t a c t e d ( 75 p e r c e n t ) c o n s i d e r t h e l a w a u s e f u l and
e f f e c t i v e r e g u l a t o r y t o o l .
S t a t e s which Rate
t h e NAIC Act E f f e c t i v e
Delaware
V i r g i n i a
New Harnpsnire
Ohio
Texas
Pennsylvania
I l l i n o i s
New York
C a l i f o r n i a
S t a t e s which Rate
t h e NAIC Act I n e f f e c t i v e
Nebraska
North Dakota
Wisconsin
The following p o s i t i v e comments were made by o f f i c i a l s who r a t e t h e NAIC
Act e f f e c t i v e :
- Companies respond t o claims- handling complaints more r e a d i l y
because of t n e law. elaw aware)
- Companies appear t o be more " claims conscious^ as a r e s u l t of t h e
law. ( New Hampshire)
- Tne law nas a d e t e r r e n t e f f e c t on companies. ( Ohio)
- The law has had an impact on companies c a l l e d i n f o r v i o l a t i o n s .
( Pennsylvania)
- The law is u s e f u l i n market conduct examinations. ( I l l i n o i s )
- The law is u s e f u l i n p r o c e s s i n g c o m p l a i n t s because it s p e c i f i e s
company r e s p o n s i b i l i t i e s . ( New York)
S t a t e s which r a t e d t n e law i n e f f e c t i v e d i d s o p r i m a r i l y because of
d i f f i c u l t y i n d e f i n i n g and proving a p a t t e r n of behavior o r " g e n e r a l
b ~ s i n e s s p r a c t i c e . " S e v e r a l s t a t e s suggested t h a t t h e Act and r e g u l a t i o n
be amended t o a l l o w a c t i o n on s i n g l e i n s t a n c e s o f u n f a i r c1ai; ns p r a c t i c e s
when warranted.
A u t h o r i t y t o Fine
Companies Is Needed
If u n f a i r c l a i m s - s e t t l e m e n t l e g i s l a t i o n is enacted c o n s i d e r a t i o n a l s o
should be g i v e n t o p r o v i d i n g t h e D i r e c t o r of I n s u r a n c e w i t h a u t h o r i t y t o
f i n e companies who v i o l a t e t h e s t a t u t e . A s noted i n Report No. 73- 4 t h e
D i r e c t o r of I n s u r a n c e l a c k s a u t h o r i t y t o f i n e companies f o r v i o l a t i o n s of
i n s u r a n c e s t a t u t e s . Thus t h e D i r e c t o r has two d i s c i p l i n a r y o p t i o n s only:
1) remove t n e company's a u t h o r i t y t o do b u s i n e s s i n Arizona o r , 2) do
n o t h i n g at a l l . E i t h e r o p t i o n seems t o o extreme t o be e f f e c t i v e a s a
method of e n f o r c i n g an u n f a i r claims- handling s t a t u t e .
Xeport NO. 79- 4 a l s o noted t h a t : ( a ) 24 o t h e r s t a t e s have t h e a u t h o r i t y
t o f i n e companies and c o n s i d e r t h i s an e f f e c t i v e means o f o b t a i n i n g
compliance with s t a t u t e s , and ( b ) t h e D i r e c t o r o f I n s u r a n c e can and does
f i n e a g e n t s f o r v i o l a t i o n s of i n s u r a n c e s t a t u t e s .
CONCLUSION
' The Department o f I n s u r a n c e l a c k s s t a ~ u t o r y a u t h o r i t y t o r e g u l a t e company
p r a c t i c e s t h a t are t h e major s o u r c e s o f consumer c o m p l a i n t s .
RECOMMENDATIONS
It is recornmentied t h a t :
1. Arizona adopt the p r o v i s i o n s of t h e NAIC U n f a i r Claims S e t t l e m e n t
P r a c t i c e s Act and t h e accompanying r e g u l a t i o n .
2. C o n s i d e r a t i o n be g i v e n t o amending t h e Act and r e g u l a t i o n t o
a l l o w a c t i o n on s i n g l e i n s t a n c e s of v i o l a t i o n s when w a r r a n t e d .
3. The D i r e c t o r be g i v e n a u t h o r i t y t o f i n e i n s u r a n c e companies f o r
v i o l a t i o n s o f t h e Act o r o t h e r i n s u r a n c e s t a t u t e s .
FINDING I V
SCREZNING PXOCEDURES ARE NEEDED ' TO FREE INVES'TIGATORS' TIHZ FOR Iii- DEPTH
INVESTIGATIONS.
The Department of I n s u r a n c e ' s i n c r e a s e d emphasis on enforcement and
d i s c i p l i n a r y a c t i o n s h a s l e d t o a need f o r more in- depth f i e l d
i n v e s t i g a t i o n s of complaints. Having recognized t h i s need, t n e D i r e c t o r
of Insurance has i s s u e d a p o l i c y s t a t i n g t h a t :
" The i n v e s t i g a t o r s a r e s p e c i f i c a l l y encouraged t o go
i n t o ' t h e f i e l d ' t o develop evidence which can be used
at a hearing."
However, it appears t h a t i n v e s t i g a t o r s g e n e r a l l y a r e unable t3 g e t o u t of
t h e o f f i c e and i n t o t h e f i e l d due t o t h e i r high volume o f r o u t i n e work,
p a r t i c u l a r l y t n e handling o f r o u t i n e phone c a l l s . It should b e noted t h a t
t h e Attorney G e n e r a l ' s Office h a s e s t a b l i s h e d a system t o s c r e e n r o u t i n e
work and f r e e its personnel f o r in- depth i n v e s t i g a t i o n s . Such a system
could be e s t a b l i s h e d i n t h e Department o f I n s u r a n c e a s well.
Routine Phone C a l l s
Department i n v e s t i g a t o r s spend much of t h e i r t i m e h a n d l i n g r o u t i n e
telephone c a l l s . It is e s t i m a t e d t h a t t h e Department r e c e i v e s 24,000
consumer c a l l s a y e a r , and t i r a t i n v e s t i g a t o r s handle 95 p e r c e n t o f them.
A s a r e s u l t , i n v e s t i g a t o r s spend up t o 75 p e r c e n t o f t h e i r time on calls.
F u r t h e r , a s p u b l i c awareness of t h e Department's consumer s e r v i c e s
i n c r e a s e s it seems l i k e l y t h a t t h e number of phone c a l l s w i l l i n c r e a s e a s
well.
Most phone c a l l s a r e of a g e n e r a l o r i n f o r m a t i o n a l n a t u r e . For example,
i n v e s t i g a t o r s have r e c e i v e d a l a r g e number of c a l l s r e g a r d i n g : 1) t h e
complaint r a t i o d a t a i n f o r m a t i o n ( s e e Appendix), 2 ) r a t e i n c r e a s e s , and
3) common p o l i c y p r o v i s i o n s . Such phone c a l l s cause i n v e s t i g a t o r s t o
spend an e s t i m a t e d 90 percent of t h e i r time i n t h e o f f i c e r a t h e r t n a n i n
t h e f i e l d .
The Attorney G e n e r a l ' s O f f i c e
Screens C a l l s t o I n v e s t i g a t o r s
The Attorney G e n e r a l ' s f i n a n c i a l fraud d i v i s i o n is r e s p o n s i o l e f o r
responding t o consumer c o m p l a i n t s i n v o l v i n g m i s r e p r e s e n t a t i o n a n i
d e c e p t i v e s a l e s p r a c t i c e s p r o h i b i t e d by A. R. S. $ 44- 1521. I n f i s c a l year
1980, t h e d i v i s i o n processed 3, 3 4 formal c o m p l a i n t s , and r e c e i v e d and
handled approximately 30,000 phone c a l l s . However, due t o a s c r e e n i n g
procedure used by t n e d i v i s i o n , only f i v e percent of such c a l l s r e q u i r e d
the a t t e n t i o n o f a n i n v e s t i g a t o r . This is i n s h a r p c o n t r a s t with t h e
Department of I n s u r a n c e ' s approximate 24,000 consuiner c a l l s d u r i n g 1979,
of wnich 95 p e r c e n t r e q u i r e d t h e a t t e n t i o n of a n i n v e s t i g a t o r .
The Attorney G e n e r a l ' s s c r e e n i n g system works as f o l l o w s : c a l l s a r e
r e c e i v e d i n i t i a l l y and screened by consumer s p e c i a l i s t s wno provide
g e n e r a l answers and comment as t o t h e a d v i s a b i l i t y o f f i l i n g formal
complaints. Using a c a l l - s e q u e n c e r system, t h e consumer s p e c i a l i s t s
handle an e s t i m a t e d 125 c a l l s a day, o r 2,500 a month. An " a t t o r n e y of
t h e month'' is a v a i l a b l e t o h e l p t h e consumer s p e c i a l i s t with d i f f i c u l t o r
t e c h n i c a l q u e s t i o n s .
About 25 percent of a l l c a l l s r e c e i v e d by consumer s p e c i a l i s t s r e s u l t i n
formal w r i t t e n complaints. When a w r i t t e n complaint is received it is
reviewed by a l e g a l a s s i s t a n t who handles i n i t i a l w r i t t e n communication
with companies and b u s i n e s s e s . I f w r i t t e n complaints i n d i c a t e a s e r i o u s
problem, t h e l e g a l a s s i s t a n t meets with t h e c h i e f c o u n s e l , who may a s s i g n
an i n v e s t i g a t o r t o t h e c a s e . These procedures allow approximately 95
percent of consumer c a l l s t o be handled ~ i t h o u t t h e a t t e n t i o n of an
a t t o r n e y o r i n v e s t i g a t o r .
I n s u r a n c e d e p a r t m e n t s i n o t h e r s t a t e s r e p o r t using similar systems t o f r e e
i n v e s t i g a t o r s f o r in- depth i n v e s t i g a t i o n s . I n Texas, f o r example,
i n - o f f i c e c o n p l a i n t - h a n d l e r s p r o c e s s pnone c a l l s and r o u t i n e paperwork,
while f i e l d i n v e s t i g a t o r s spend n e a r l y a l l of t h e i r time o u t o f t h e o f f i c e
c o n d u c t i n s i n t e r v i e w s and g a t h e r i n g information.
According t o t h e D i r e c t o r of I n s u r a n c e , t h e Department is planning t o
e s t a b l i s h a c o n s u m e r - s p e c i a l i s t p o s i t i o n t o handle r o u t i n e c a l l s .
CONCLUSION
Much o f t n e Department i n v e s t i g a t o r s ' time is n o t s p e n t conducting
i n v e s t i g a t i o n s but r a t h e r on r o u t i n e and i n f o r m a t i o n a l work t h a t could be
handled by less n i g h l y - t r a i n e d persons.
It is recommended t h a t t h e Department c o n t i n u e its e f f o r t s t o review and
implement a system similar t o t h e system developed by t h e Attorney
G e n e r a l ' s f i n a n c i a l fraud d i v i s i o n t o s c r e e n and handle r o u t i n e consumer
c a l l s .
BRUCE BABBITT
c. OVLT) NO"
STATE OF ARIZONA
DEPARTMENT OF INSURANCE
1601 WEST JEFFERSON
PHOENIX, A R I Z O N A 85007
J. MICHAEL LOW
DIDLCTO- OF I N S U R A N C E
November 28, 1980
Douglas R. Norton, CPA
Auditor General
Legislative Services Wing
State Capitol, Room 200
Phoenix, Arizona 85007
Dear M r . Norton:
I have received a copy of the preliminary d r a f t report regarding
your o f f i c e ' s audit of the consumer complaint function of the
Arizona Department of Insurance. In the main, I am i n agreement
with most of the findings and recommendations s e t f o r t h i n your
report. I believe t h a t the report f u l l y documents the many
s i g n i f i c a n t a c t i o n s r e c e n t l y undertaken by the Department with
respect t o publicizing i t s existence and willingness t o a s s i s t
policyholders, cracking down hard on fraudulent and misleading
a c t i v i t y on the p a r t of s e l l i n g agents and informing the public
on a number of t o p i c a l insurance s u b j e c t s , such as the publica-t
i o n of a personal l i n e s complaint r a t i o and an auto insurance
premium comparison.
While I believe the o v e r a l l report r e f l e c t s p o s i t i v e l y on the
Department's commitment t o a s s i s t Arizona policyholders and
claimants, I do f e e l compelled t o b r i e f l y comment upon two of
the areas where c e r t a i n d e f i c i e n c i e s were indicated. The f i r s t
i s the statement t h a t the Department has not established a pro-cedure
t o monitor t o t a l complaints against agents. Indeed, one
of the examples described in t h e r e p o r t r e f e r r e d t o an agent who
purportedly had ten complaints pending against him without any
d i s c i p l i n a r y proceeding being noticed f o r hearing by the Depart-ment.
I am attaching hereto a copy of my memorandum of March 2 0 ,
1980, t o t h e I n v e s t i g a t i o n s Section and Hearing Division of the
Department. A s you can see, t h a t memo unequivocally requires an
investigation of any agent who has more than one complaint pending
against him. Additionally, the memo c l e a r l y s t a t e s t h a t agents
who a r e g u i l t y of making misrepresentations, p a r t i c u l a r l y i n the
s a l e of medicare supplement p o l i c i e s t o the e l d e r l y , should auto-matically
be r e f e r r e d f o r a d i s c i p l i n a r y hearing before the
STATE OF ARIZONA
DEPARTMENT OF INSURANCE
Douglas R. Norton, CPA
Auditor General
November 28, 1980
Page Two
Hearing Division of the Department. It is my understanding t h a t
the Investigations Section is following the d i r e c t i v e l a i d down
i n my memo of March 20, 1980. Indeed, it should be apparent a
t h a t the large increase i n the number of agents' hearings, which
is commented upon i n the r e p o r t , is due t o the d i r e c t i v e l a i d
out i n my memo. P a r e n t h e t i c a l l y , we have endeavored t o determine
the i d e n t i t y of the agent who the report describes as having ten
complaints pending against him. While the name of the agent was
not i d e n t i f i e d by your s t a f f , based upon the name of one of the a
complainants involved i n t h i s s i t u a t i o n ( the name of one of the
complainants was given t o us by your s t a f f ) , it appears t h a t the
Department recently concluded a hearing where two of the agents
involved i n t h i s matter were d i s c i p l i n e d . One had h i s license
revoked, while the other had it suspended f o r a period of s i x
months. Regardless, we are committed t o the prompt and e f f e c t i v e a
enforcement of the insurance laws, through d i s c i p l i n a r y hearings
based upon complaint data and our i n v e s t i g a t i v e a c t i v i t y . I
believe t h a t my memo of March 20, 1980, provides firm standards
f o r the i n v e s t i g a t o r s i n t h e i r use of the complaint data.
The second area of deficiency pointed out in the preliminary
d r a f t report involves the f a i l u r e of the i n v e s t i g a t o r s t o docu-ment
a l l consumer complaints received by the Department. Spe-c
i f i c a l l y , the i n v e s t i g a t o r s a r e c r i t i c i z e d f o r f a i l i n g t o log
i n the telephone c a l l complaints which t h i s Department routinely
receives. I am i n basic agreement with your conclusion and
recommendation i n t h i s regard. Effective December 1, 1980, the
i n v e s t i g a t o r s w i l l begin t o log i n the telephone c a l l consumer
complaints. It should be noted t h a t the Department scrupulously
records and monitors a l l written consumer complaints which are
f i l e d with t h i s agency. Indeed, many consumers are encouraged
over the phone t o f i l e a written complaint with the Department
i n order t o a s s i s t i n v e s t i g a t o r s in reviewing and, hopefully,
resolving the p a r t i c u l a r complaint. As t h e r e p o r t i n d i c a t e s ,
t h e i n v e s t i g a t o r s are l i t e r a l l y overwhelmed with upwards of 175
telephone c a l l s a day. Many of these c a l l s are of informational
nature and can be handled e a s i l y . Others f a l l i n t o the category
of a consumer complaint and, i n the p a s t , the Department has
e i t h e r encouraged the f i l i n g of a written complaint or it has
r e f e r r e d t h e complainant t o a claims supervisor with t h e i n s u r e r
complained about i n order t o give t h a t company one l a s t oppor-t
u n i t y t o s a t i s f a c t o r i l y handle the matter. I i n i t i a t e d t h i s
STATE OF ARIZONA
DEPARTMENT OF INSURANCE
Douglas R. Norton, CPA
Auditor General
November 28, 1980
Page Three
latter procedure following a speech which I gave to the Phoenix
Claims Managers' Council. At that time, I was requested by
the various claims supervisors to permit them the opportunity
to review a consumer complaint before it is formally filed with
this office. This procedure was initiated based upon my belief
that not only would much of the workload of the Department be
reduced in this area, but also that this suggestion from the
insurance industry itself was really in the best interest of
the policyholder and could provide a far speedier resolution
of the particular policyholder's complaint. I still think that
this program is a good one and I am personally pleased at
industry's effort in this regard. Regardless, we will initiate
telephone logging procedures which should provide us with firm
information about the number of consumer complainants who do
indeed receive a satisfactory resolution of their complaint
through this program.
I am in complete accord with the recommendation regarding the
adoption of the Unfair Claim Settlement Practices Act and the
accompanying regulation. The Department will be proposing this
legislation during the next session of the Arizona Legislature.
I also completely agree with the statement that ' the Unfair Claim
Settlement Practices Act should permit action on single instances
of violations where warranted. I also believe that the recommen-dation
regarding the Department's effort to implement a system
whereby the investigators are freed up to concentrate upon
investigations as opposed to handling consumer telephone calls
is a good one. Although I am not persuaded that the analogy
to the Attorney General's Financial Fraud Division is entirely
valid ( it should be noted that I was previously the assistant
chief counsel for that division in the Attorney General's office),
there is a need to separate the functions of processing consumer
complaints and investigating violations of the insurance laws.
We have endeavored to do just that during the past six months.
Specifically, certain investigators focus upon field investiga-tions,
while others try to assist consumer complainants with
their problems. It should be noted that unlike the typical
phone calls to the Financial Fraud Division of the Attorney
General's office, many insurance inquiries require that the
person responding to the question have a detailed knowledge of
an oftentimes technical and complicated contract, i. e., the
insurance policy. Regardless, we have requested a position for
STATE OF ARIZONA
DEPARTMENT OF INSURANCE
Douglas R. Norton, CPA
Auditor General
November 28, 1980
Page Four
a consumer s p e c i a l i s t a s p a r t of our proposed 1981- 1982 budget.
This p o s i t i o n w i l l then be p r i n c i p a l l y r e s p o n s i b l e f o r handling
t h e consumer complaints. Hopefully, t h i s should permit t h e
i n v e s t i g a t o r s t o concentrate upon t h e i r primary mission o f
i n v e s t i g a t i n g v i o l a t i o n s of t h e Arizona Insurance Laws.
I would l i k e t o conclude by complimenting your f i n e s t a f f on
t h e work they have done during t h i s performance a u d i t . Specif-i
c a l l y , I would l i k e t o commend both J e r r y M i l l s and B i l l •
Thomson f o r t h e i r c o n s t r u c t i v e a t t i t u d e and problem- solving
approach t o t h i s examination. I am reminded somewhat of t h e
19th century English e s s a y i s t , C a r l y l e , who e n t i t l e d h i s philo-sophical
musings S a r t o r Resartus ( t h e t a i l o r mended). Carlyle
was concerned with who would patch up t h e t a i l o r . In t h i s
i n s t a n c e , I can say t h a t your o f f i c e has been a competent and
h e l p f u l " seamstress" f o r t h i s Department.
S i n c e r e l y ,
J. Michael Low
Director of Insurance
JML: ph
Encl.
STATE OF ARIZOMA
DEPARTMENT OF INSURANCE
MEMO TO: J e r r y Wilson
J i m Smith
J e f f Larson
FRO?! : J. Michael Low
DATE : March 20, 1980
RE : Agents ' Hearings
I have reviewed s e v e r a l of the c o ~ p l a i n tf i l e s r e l a t i n g to
the s a l e of Medicare supplement p o l i c i e s and. o t h e r h e a l t h
coverages t o the e l d e r l y . I am astounded t h a t e v i d e n t l y
t h e r e a r e s e v e r a l repeat offenders still doi. n- s business a s
insurance agents i n t h i s s t a t e . 1 suggest t h a t anytime an
a g e n t h a s more than one complaint pending a g a i n s t h i m , he
is probably a f i t s u b j e c t f o r a d i s c i p l i n a r y h e a r i n g .
Additionally, some of t h e a l l e g a t i o n s a r e s e r i o u s enough
t o aut. ornatically take before a hearing officer.
It is s i n p l y not enough t o obtain a refund f r o m the insur-ance
conpany and then t r e a t the matter as closed, W e have
a continuing regulatory r e s p o n s i b i l i t y to guarantee t h a t
any agent who is making nisrepresenta. tions becomes the sub-ject
o f a prornpt and meaningful discip1. i- nary proceedi- ng,
Obviously, we might utilize some o f t h e s e agents . i 1- 1 o u r
upcoming operation; however, t h a t should not i n any way
l i m i t the Department's continuing regulatory a c t i v i t y a g a i n s t
agents who have a h i s t o r y of complaints e l a t i n g t o misrepre-s
e n t a t i o n s -
APPENDIX
PRESS RELEASES OF THE
DEPARTMENT OF INSURANCE
Contact: J. Flicha- l Low
Uj r e c t o r ~ f Insurance
1601 P; est J e f f e r s o n
Phoenix, Arizona 85007
FOR IbIMEDIATE RELEASE
April 23, 1380
DIRECTOR OF IKSXR71S2E ANNOUNCES FORFJATIODT OF
SZNIOR CITIZENS HEALTY INS3F-- 4NCE ADVISORY COMPIITTEE
The iiri? c: ia D i r e c t o r of Insurance, J. Michael Low, t o d ~ y
xmounci? d t h e f oriiiatior. of a Ser! i. or C i t i z e n s Health Insurar:~?
Ac? visary Corn- nittee. Th-? C o m ~ i t t . e e , which is composed of i n i ~ r e s t e d
c i ti Z S ~ L S f rain ar3:~ nd the s ta t: e , will a s s i s t the Ar- i zcr,;: Dsg2. r tii: eri. t
of I n s u r a ~ c ? i n forrnulatlng an e f f e c t i v e s t r a t e g y to curb & uses
t h a t t3ke pl. ace i n the s a l e of hea1t. h ;- nsurance products, s= ch
as :, I? dlcsrc su~ p!.. ex-? ntp o l i c i e s a ~ l dc ancer p o l i c i e s , t o the 2 7 1 5 ~ 2 ; - 7 7 - .%- ... & I .
It. i s F>:? L: C tee! that the Corrmi -:. tee v7F 11 recornmen6 r u l e s for ac': oj:) ;..;' j:. i
h> 7 the Dt: par" Li~ rit, 2ropose I e i j i s l a t i o n and coordina. t:? p! ibiic ir: fc> r--
n!:% tici- i pro<,; r;; T. F .
p.,~ cordinitj o Director Low, " The top p r i o r i ty c c ~ n f r ~ r ! t l n ct; h e
Departiwnt is t o C: evel3~ 1 an o v 3 r a l l program of e f f z c t i v e eilfore? i; e;? t:
public etluc;. tic3 rel. atl. ng t o the :: ale of tgledicare s u p ~ l e nte ~
. . pollc12s an. 3 clr- ead cl- sssse coveraqes. The Comj.- ttee w i l l co_ r, diic~.
p u b l i c h?;; rinys i n order to receive s u b s t a n t i a l i n p u t f r 3 n s e z i o r
. .. ci ti~;? n..;, t:: t3' r! rby, p. rof: i.? liil~; t'. 112 ? T O ~ ~ C I S Si n ti1i. s area in a vl. i; ri~ le
SERVING
ARIZONA'S
INSURANCE
CONSUMERS
The formation of t h i s Committee is p a r t o f t h e Department's
commitment t o crack down on f r a u d u l e n t a c t i v i t y and deceptive
p r a c t i c e s i n t h e marketing of h e a l t h insurance coverages t o t h e
e l d e r l y . "
" I expect an a c t i v e and aggressive Committee," s a i d Low,
" t h e r e f o r e , I have sought o u t competent and concerned c i t i z e n s
t o s i t on t h i s body. " The ten- member Committee c o n s i s t s of t h e
following i n d i v i d u a l s :
The Honorable Rod McMullin of Phoenix,
Arizona S t a t e Senator;
The Honorable S i s t e r Clare Dunn of Tucson,
Arizona S t a t e Representative;
Benjamin N. Brook of Tucson,
blevber of t h e Governor's Advisory Council
on Aging and the Executive V i c e P r e s i d e n t
of t h e Jewish Community Foundation;
Chester Fiaxmayer of Phoenix, a Special
Deputy D i r e c t o r of Insurance and a former
insurance company executi. ve;
Cyrus E. Magn~ lsson of Sun C i t y , a former
Minnesota Co~ missioner of Insurance;
Harry R. Pinney of Sun C i t y , a Consultant
t o the Arizona L i f e and D i s a b i l i t y Insurance
Guaranty Fund;
Charles R. Pyle of Tucscn, an a t t o r n e y w i t h
Southern Arizona Legal Aid;
N. C. ( Nick) Ragus of Globe, Chairman, Gila
County Planning and Zoning omm mission;
Martha M. T o s t i of Phoenix, menber of t h e
Governor's Advisory Council on Aging, and
Gwen M. Bedford of Phoenix, Research Analyst
f o r t. be Area Agency on Aging.
Contact: Hearing Division
Department of Insurance
1601 West Jefferson
Phoenix, Arizona 85007
FOR IN' 4EDIATE RELEASE
April 28, 1980
DEPARTPIENT OF 1NSU: RANCE ANNOUNCES SUCCESSFUL CONCLUSION OF
MEDICARE SUPPLEMEET STING OPERATION; HEARINGS NOTICED
The Arizona Department of Insurance announced today that
it had successfully concluded a sting operation relating to
the sale of Medicare supplement insurance policies. The sting
invol. ved the video taping of actual sales presentations of
agents selling Medicare supplement coverages in a prospective
policyholder's home.
The Arizona Director of Insurance, J. Michael JAoT, v,
indicated that an undercover video taping operation was used
because of the difficulty in investigating and proving oral
misr? presentations in Mediczre supplement cases. Acc~ rding to
Director I, ow, " These hearincjs are part of the Department ' s
enforccmcnt effort to curb deceptive practices in the sale of
Medicare supplement policies to the el2. erly. l'
Agents Howard \< Jasserman, M ike Braunberger, and Harold
Archer, all of Christian Heritage Life Irisurance Conpany , tq- re
noticed f ~ r hearing by the Departillen tar together with clcjen ts
Robert Parrish of Pioneer LiEe Insurance Conpzny of Illinois,
an6 Robert h! adc? en of Arrerican cuaranty Life Insurance Compariy.
SERVING
ARIZONA'S
INSURANCE
CONSUMERS
Specific information regarding the allega- tions and subject
matter of the notices of hearings may be obtained from the
Hearing Division of the Department of Insurance. However,
it is generally alleged that these agents failed to explain
benefits or misrepresented the true nature of the benefits
payable under the policies they were selling. Additionally,
it is generally alleged that these agents failed to disclose
or misrepresented the ~~ aitinpge riods for preexisting condi-tions
in said policies. Also, it is generally alleged that
these agents misrepresented benefits under an existing policy
for the purpose of inducing a person to lapse or not renew
that policy. One agent allegedly stated that a stroke or
heart attack was an accident and would therefor2 be covered
immediately under a policy provision providing benefits for
accidents. The Department is aware of no insurer which has
ever considered a stroke or a heart attack as an accident.
These hearings may result in cease and desist orders, suspcn-sion
or revocation of licenses and the imposition of monetar:;
penalties.
Also noticed for hearing is Christian Eeritage Life
Insurance Company. The Department has alleged that the
company's executi-~ eo fficer is aware of deception by agents
in avoiding an explanation of the preexisting clause in its
Medicare supplegent policy and that the agents are trai~~ ecl
to only briefly and inadequately explain medical and surgical
( continued, page 3)
benefits. Additionally, it is alleged that an officer of
the company failed to disclose to a prospective policyholder
that thsre was a waiting period before that prospective
policyholder's preexisting condition would be covered. This
hearing may result in the suspension or revocation of the
company's Certificate of Authority and the imposition of
cease and desist orders. Again, specific information reyard--
ing the allegations and the subject matter of the Christian
Heritage Life Notice of Hearing can be obtained from the
Hearing Division of the Department of Insurance.
Contact: Hearing Division
Department of Insurance
1601 West J e f f e r s o n
Phoenix, Arizona 85007
FOR I?/ IP. IEDIATX RELEASE
May 7, 1980
MORE HEARINGS NOTICED I N MEDICARE SUPPLEI4ETJT STING OPERATION;
MEDICARE SUPPLEMENT INSUPANCE POLICY DISAPPROVED
The Arizona Department of Insurance announced today t h a t
four more agents have been noticed f o r hearing a s a r e s u l t of
a s t i n g o p e r a t i o n conducted by the Departnent i n conjunction
with KPNX- TV of Phoenix, Arizona. KPNX- TV, working with t h e
Department, videotaped t h e a c t u a l s a l e s p r e s e n t a t i o n s of t h e
agents.
The agents named i n t h i s second wave of h e a r i n g s a r e Alice
Greylock, Casper Kuntz, Hugh Hillburn and Dennis Tagas, r e p r e -
s e n t i n g r e s p e c t i v e l y , Union F i d e l i t l T L i f e Insurance Company,
R e l i a b l e L i f e and Casualty Insurance Cor.~ pany, E q u i t a b l s L i f e
and Casual- ty Insurance Company and United Founders L i f e Insur-ance
Company. The n o t i c e s g e n e r a l l y a l l e g e t h a t t h e s e agents
f a i l e d t o explain S e n e f i t s or misrepresented t h e t r u e n a t u r e
of t. he b e n e f i t s payable under t h e p c l i c i e s they were s s l l i n g .
AC! ditionally, it is g e n e r a l l y a l l e g e d t h a t t h e s e a g e n t s misrep-resented
b e n e f i t s vn5er an e x i s t i n g policy f o r t h e purlzose of
( continued, page 2 )
SERVING
ARIZONA'S
INSW RANCE
CONSUMERS
inducing a perscn to lapse or not renew that policy. Specific
information regarding the allegations and subject matter of
the notices of hearings may be obtained from the Hearing Divi-sion
of the Department of Insurance.
The Department also issued an order withdrawing approval
of the Medicare supplement insurance policy sold by Christian
Heritage Life Insurance Company. The Department alleges that
the purchase of the policy is being solicited by false, decep-tive
or misleading misrepresentations in violation of Arizona
law. The effect of the Department's action is that the policy
cannot be issued or used in the State of Arizona. Specific
information regarding the allegations and subject matter of the
order may be obtained from the Hearing Division of the Depart-ment
of Insurance.
The Arizona Director of Insurance, J. Michael Low, thanked
KPNX- TV for its assistance, noting that an undercover video-taping
op~ ration is the best method of proving oral misrepresen- 0
tations in Medicare supplement cases.
Contact: J. Michael Low
Director of Insurance
Arizona Department of Insurance
1601 \ t e s t J e f f e r s o n
Phoenis, Arizona 85007
( 602) 255- 4862
FOR IIWYEDIATE RELEASE
May 29, 1980
DIRECTOR OF INSUKPdCE ANNOUNCES ADOPTION
OF $' IEDICAI? E SUPPLEMENT POLICY REGULATION
The Arizona Director of Insurance, J. Michael Low, annoui-? ceC
today t h a t he has adopted a comprehensive r e g u l a t i o n r e l a t i n g tc
the s a l e of Medicare supplement insurance p o l i c i e s . The regula-t
i o a , which t a k e s e f f e c t J u l y 1, 1980, is s i m i l a r t o a model r u l e
proposed by the N a t i o n a l A s s o c i a t i o n of Insurance Commissioners.
The Arizona r u l e makes it unlawful f o r an i n s u r e r o r an agent t o
r e p r e s e n t t h a t the company o r t h e agent is sponsored by t h e fed-e
r a l government o r a f f i l i a t e d with !+ ledicare. It a l s o e x p r e s s l y
p r o h i b i t s any misleading d e s c r i p t i o n of Medicare b e n e f i t s o r t h e
b e n e f i t s provided by the Piledicare suppiemen- c p o l i c y .
The r e g u l a t i o n f u r t h e r r e q u i r e s t h a t a11 i n s u r e r o r an agent
rr. ust provide a p r o s p e c t i v e policl7' 1older with a Medicare supplerwnt
insurance guj- de, which explains what Medicare pays and d o e s n ' t pay,
and an o u t l i n e o f coverage, which s p e c i f i c a l l y c o n t r a s t s t h e 5enc:-
D
f i t s provided by t h e proposed policy with t h e FIedicdre b e ~ e ftis .
The o u t l i n e of coverage a l s o i n f o r v s t h e p r o s p e c t i v z policyholder
( continued, paqc 2 ) SERVING
ARIZONA'S
INSURANCE
CONSUMERS
a s t o t h e p a r t i c u l a r expenses which t h e p o l i c y h o l d e r must pay
because such expenses a r e not covered by t h e p o l i c y .
According t o D i r e c t o r Low, " This r u l e hopefully w i l l ensure
t h a t s e n i o r c i t i z e n s \/- illr e c e i v e complete and a c c u r a t e information
4
as t o what a proposed policy w i l l cover a t t h e t i m e a s o l i c i t a t i o n
is made." D i r e c t o r Low f u r t h e r cautioned t h a t a s e n i o r c i t i z e n
should not purchase a ; bledicare supplement p o l i c y u n t i l he o r she
has had t h e opportunity t o thoroughly review both t h e guide and
t h e o u t l i n e of coverage f o r t h e p a r t i c u l a r p o l i c y being s o l d .
Any i n t e r e s t e d person who would l i k e t o r e c e i v e t h e Medicare
supplerr! lnt insurance guide should c o n t a c t the Co~ suiner A f f z i ~ r s
Division of the Arizona Department of Insurance.
Contact: E m i l Barberich
Property & Casualty Division
Arizona Department of Insurance
1601 West Jefferson
Phoenix, Arizona 85007
( 602) 255- 5422
FOR IMMEDIATE RELEASE
June 2, 1980
DEPARTMEKT OF INSUEWPICE
PUBLISHES AUTO INSURANCE PREMIUM COMPARISON
The Arizona Director of Insurance, J . Michael Low, announced
today that the Department of Insurance has published an au- to
insura~ ce premium comparison for the twenty- six companies that
write over 90% OF the private passenger automobj. le insurance
in Arizona. The premiuin comparison s e t s forth the base rates
for a 35 year- old policyholder with a clean drtving record. The
rates for both Phoenix and Tucson are included in the comparison.
According to Director Low, " Arizona has recently enacted
an open cor. rtpetition rating law which w i l l take effect on July
31,1980; thereafter, auto insurers w i l l be able to charge premium
rates without the prior approval cf the Insurance Departmerlt,
1: n order t; o a s s i s t the publric's awareness of price co~ lpe- tition
in t h i s m a r l c e t , the Depar- tment w i l l provicle Arizona consmers
r. 13. th per- Lodic premium comparisons. "
Director Low furthey stated that the competitive ratirrg
law should work to the pslblic's benefit provided thkt consumers
( continued, page 2)
SERVING
ARIZONA'S
INSURANCE
CONSUMERS
shop for the best insurance coverc? ge for their- premium dollar.
The Department will attempt to revise the premium comparison
at least once every three months. Additionally, Director Low
indicated that a consumer complaint index for auto insurers was
being prepared at the Department and would be published in the
near future. Such an index will provide a rating of insurers
based upon the total number of complaints contrasted with the
amount; of premium written in Arizona.
Any interested person who would like to receive a copy of
the Private Passenger Automobile Premium Comparison should contact
the Consumer Affairs Division of the Arizona Department of Insur-ance.
A copy of the premiuii comparison is attached hereto.
- P- RIVATE PAS SENCEK AUTOMOBILE PREMIUPl CO~~ PLIRISON*
T h i s premium c o m p a r i s o n i s b a s e d on a h y p o t h e t i c a l i n s u r e d ( m a l e
o r f e m a l e ) age 35 who i s t h e o n l y o p e r a t o r and h a s no c h a r g e a b l e
a c c i d e n t s o r t r a f f i c c o n v i c t i o n s . The a u t o i s u s e d f o r p l e a s u r e
o n l y . The premiums shown a r e b a s e d on f i n a n c i a l r e s p o n s i b i l i t y
r e q u i r e d l i m i t s of 1 5 , 0 0 0 / 3 0 , 0 0 0 f o r b o d i l y i n j u r y , 1 0 , 0 0 0 f o r
p r o p e r t y damage and 1 5 , 0 0 0 / 3 0 , 0 0 0 u n i n s u r e d m o t o r i s t c o v e r a g e
u n l e s s o t h e r w i s e n o t e d . T h e p r e m i u m s do - n- o t i n c l u d e o t h e r c o v e r -
a g e s s u c h a s c o m p r e h e n s i v e o r c o l l i s i o n . A l l premiums a r e shown
a s 6 m o n t h p r e m i u m s , a l t h o u g h some c o m p a n i e s w r i t e o n l y a n n u a l
p o l i c i e s . I n d i v i d u a l p o l i c y premiums w i l l v a r y g r e a t l y d e p e n d i n g
on many r a t i n g f a c t o r s n o t i n c l u d e d i n t h i s c o m p a r i s o n and o t h e r
c o v e r a g e s p r o v i d e d may d i f f e r s u b s t a n t i a l l y b e t w e e n i n s u r e r s .
Some i n s u r e r s hxve inore t h a n one r a t i n g t e r r i t o r y w i t h i n a g e o -
g r a p h i c a l a r e a . \&! here t h i s o c c u r s , t h e h i g h e s t r a t e d t e r r i t o r y
h a s b e e n u s e d f o r c o m p a r i s o n . Some i n s u r e r s a l s o pay d i v i d e n d s
w h i c h would m o d i f y t h e u l t i m a t e premium c h a r g e d .
SEX PHOENIX TUC- S- ON
FAR? IERS INSURANCE C O . M& F 9 1 . 3 0 8 0 . G O
STATS FAKW MUTUAL ( 1 3 ) M& F
ALLSTATE
SENTRY I N S . , A MUTUAL C O . ( 1 ) M& F
UNITED SERVICES AUTO. M& F
USAA CASUALTY INS. CO. M& F
HONE INSUXAKCE C O .
( Gold Key)
HAKTFORD CASUALTY ( 1 2 ) f. 1 & F
LIBERTY MUTUAL FIRE ( 3 ) ( 1C) M& F
CONTINENTAL > I& F
GOVERXPfENT EMPLCYEES ( 1 0 PI & F
COLONIAL PENN ( 5 ) ( 1 0 ) M& F
NrlTIOKlJIDE NUTIiAI, FIRE
NATIONIJIZE FIIJTUAT, INS.
ASSOCIATED INDEXKITY
EQUITABLE GENERiIL,
AETXA CAS. h SURETY
- SEX PHOENIX TUCSON
LUXBERMEN ' S MUTUAL CAS . ( 8 ) M& F 1 1 8 . 0 0 8 9 . 5 0
ANERICAN MOTORISTS ( 8 ) MGF I I I 1
CIVIL SERV. EMPLOYEES M& F 6 9 . 9 0 6 0 . 80
PRUDENTIAL PROP. & CAS. M& F 8 5 . 0 0 6 4 . 0 0
I N S . C O . OF NORTH ANERICA ( 9 ) M 9 0 . 0 0 7 9 . 0 0
F 8 0 . 0 0 6 9 . 0 0
TRAVELERS INDEMNITY FIGF 6 0 . 0 0 5 7 . 0 0
AUTOMOBILE CLUB
WESTERN AGRICULTURE M& F 8 6 . 8 0 7 9 . 1 0
O H I O CASUALTY ( 1 0 ) M& F 9 6 . 0 0 9 0 . 5 0
S e n t r y minimum l i m i t s a r e $ 5 0 , 0 0 0 S i n g l e L i m i t f o r BI and PD
and i n c l u d e s Med. P a y .
The Home w r i t e s a n n u a l p o l i c i e s - C o v e r a g e P k g . i n c l u d e s Xed.
P a y . and A c c i d e n t a l D e a t h .
The L i b e r t y M u t u a l p r o v i d e s mininurn l i m i t s a t B I , PD, UM S i n g l e
L i m i t $ 4 0 , 0 0 0 and i n c l u d e s Ned. Pap. ( I
A s s o c i a t e d Ind:> rnnity minimum l i m i t s a r e $ 5 0 , 0 0 0 S i n g l e L i m i t
RI/ PD and $ 3 0 , 0 0 0 S i n g l e L i m i t UX.
C o l o n i a l Penn B I i n c l u d e s Med. P a y .
T r a n s a m e r i c a minimum l i m i t s a r e $ 4 0 , 0 0 0 S i n g l e L i m i t s ST/ PD.
1 5 / 3 0 U> l i n c l u d e s U n d e r i n s u r e d M o t o r i s t c o v e r a g e .
A e t n a C a s . h S u r . minimum l i m i t s a r e $ 40,00G S i n g l e L i m i t BI/ PD ' a
i n c l u d i n g N e d . P a y . and 1 5 / 3 0 UM.
The Lumbernen' s M u i . Cas. and Arneri c a n M o t c r i s t s minimczn l i m i t s
a r e $ 5 0 , 0 0 0 S i n g l e L i m i t BI/ PD.
I N A P a c k a g e s t h e c o v e r a g e s ~ ~ i mtinhim um l i m i t s of 5 0 / 1 0 0 X I ,
25 PD, 1 5 / 3 0 UM and i n c l u d e s sled. P a y .
W r i t e s Annual P o l i c i e s o n l y .
R a t e s e f f e c t i v e 6- 1- 80.
The H a r t f o r d p r o v i d e s a minimum $ 4 0 , 0 0 0 S i n g l e L i m i t .
A 10. b;: r a t e i n c r e a s e w i l l become e f f e c t i v e 6 - 2 0 - 8 0 ; t h e r a t e s
w i l l t h e n b e $ 6 8 . 0 0 f o r P h o e n i x and $ 5 1 . 6 0 f o r T u c s o n .
B I means b o d i l y i n j u r y .
PD means p r o p e r t y damzge.
Fled. P a y . means m e d i c a l p a y m e n t s .
U$ I means u n i n s u r e d m o t o r i s t .
Contact: Emil Barberich
Property and Casualty Division
Arizona Department of Insurance
1601 West Jefferson
Phoenix, Arizona 85007
( 602) 255- 5422
FOR IMMEDIATE RELEASE
July 2 , 1980
DEPARTMENT OF INSURANCE PUBLISHES COMPLAINT RATIOS
FOR PERSONAL LINES INSURERS
The Arizona Director of Insurance, J. Michael Low, announced
today that the Department of Insurance has published the complaint
ratios for the 41 companies that write approximately 96% of the
personal lines insurance in Arizorm. The personal lines involved
in these ratios include private passenger automobile insurance,
homeowners insurance and fire insurance on private dwellings.
The ratios consist of the number? of written complaints received
by th- Department per 1,000 policies in force during 1979. The
total number of personal lines policies in force and the total
number of written complaints logged in by the Department during
1979 are similarly included in the pilhl ication,
According to Director L, ow, " The complaint ratios are designed
the respective complaint histories for companies selling personal
lines coverages. HoweverL, it is important to realize that the
complaint figures used do not reflect a deterrr~ ination or1 the part
SERVING
( continued, paqe 2)
ARIZONA'S
INSURANCE
CONSUMERS
0
of the Department that such complaints were valid, The complaint
figures merely represent written complaints which were received
by the Department during 1979."
Director Low further stated that the complaint ratios w i l l
be used by the Department for purposes of determining which insur-ers
will be examined with respect to their claim paying practices
and procedures. Director Low announced a new Department policy
under which any company having more than 5,000 policies in force
in Arizona with a complaint ratio in excess of 1- 00 would be a a
possible candidate for such a market conduct examination.
Director LOW noted that the Department is presently conduct-ing
an examination of the claims paying practices of Farmers In-surance
Company. The results of that examination should be madz
public in about one month. 9- iopefully, the publication of these
complaint ratios, and the Department's use of them in determining
. .
likely candidates for market conduct examinations, will encourage
companies to be more responsive to policyholder cmplaints, I* Di-rector
1, ow said.
Any interested person who would like to receive a copy of
the personal lines complaint ratios should contact the consuner
affairs division of the Arizona ~ epartment of Insurance. In Phoe- -
n . th e telephone number is 255- 4783, Xr, T= CSOS~, the telephone
number is 882- 5386. A copy of the complaint ratios is attached
0
hereto.
Rank
1
2
3
4
5
6
6
7
8
9
10
10
11
ARIZONA PERSONAL LINES 1979
RATIO COMPLAINTS PER 1,000 POLICIES
Company
No. P o l i c i e s
I n Force
1979
C o n t i n e n t a l Group 32,022 8
W e s t f i e l d Companies 16,928 5
Home I n s u r a n c e Group 45,951 16
USAA 28,717 11
F i r e m e n ' s Fund 33,400 13
S a f e c o 48,454 21
T r a n s a m e r i c a 20,747 9
A l l s t a t e 322,715 160
Royal Globe 14,915 8
S t . P a u l I n s u r a n c e Co. 10,714 6
CNA 16,506 10
U. S. F. & G. 9,817 6
S t a t e Farm Mutual 5(
S t a t e Farm F i r e & Cas. 405,745 259
H a r t f o r d Group 28,543 19
T r a v e l e r s 17,830 12
Horace Mann
AAA
Commercial Union 8,036 9
C e n t r a l N a t i o n a l
Farmers Group
Aetna L i f e & C a s u a l t y 20,945 26
P r u d e n t i a l Prop. & Cas. 11,463 15
C o m p l a i n t s
P e r 1,000
P o l i c i e s
Rank
20
Company
No. Policies
In Force
1979
M e t r o p o l i t a n P r o p . & C a s . 3 , 7 5 1
N a t i o n w i d e I n s u r a n c e Co. 1 6 , 2 0 5
Summit Home 1 0 , 1 6 2
O h i o C a s u a l t y 1 2 , 0 7 9
Preferred R i s k 6 , 7 9 6
A m b a s s a d o r I n s u r a n c e Co. 3 , 7 9 6
AID I n s u r a n c e Co. 3 , 3 7 2
C o l o n i a l P e n n I n s u r a n c e Co. 1 8 , 3 0 8
C o l o n i a l I n s u r a n c e Co. ( L. A.) 8 , 1 4 1
INA 7 1.914
D a i r y l a n d 2 4 , 1 1 0
E q u i t a b l e G e n e r a l 1 2 , 4 5 0
C i v i l S e r v i c e I n s u r a n c e Co. 4,390
E m p l o y e r s ( Wausau) 1 , 8 8 9
Motors I n s u r a n c e Co. 2 , 1 4 5
A m e r i c a n B a n k e r s 1 , 3 6 1
Globe A m e r i c a n 6 , 5 0 0
I n t e g r i t y I n s u r a n c e Co. 1 , 0 5 0
Heritage I n s u r a n c e Co. 743
ALL COMPANIES 1 , 5 3 2 , 3 7 2
C o m p l a i n t s
5
22
14
17
1 0
6
6
34
1 6
1 7
C o m p l a i n t s
P e r 1 , 0 0 0
P o l i c i e s
1
1 . 3 2
Contact: E m i l Barberich
Property and Casualty Division
Arizona Department of Insurance
1601 West J e f f e r s o n
Phoenix, Arizona 85007
( 602) 255- 5422
FOR IMMEDIATE RELEASE
July 3, 15180
CORRECTION I N TOTAL POLICIES AND COMPLAINT RATIOS
FOR FANVIERS INSURAECE COMPANY
The Arizona Department of Insurance has i s s u e d a. correotion
i n t h e complaint r a t i o s which w e r e published hl7 the Uepartmznt
yesterday. The c o r r e c t i o n involves t h e Farmers Group. The number
of p o l i c i e s i n f o r c e f o r 1979 should be 415,691 and n o t 272,357
a s r e f l e c t e d i n y e s t e r d a y ' s p r e s s r e l e a s e . The complaints per
1,000 p o l i c i e s f o r Farmers shcubd be 0.76 and not 1.1.6 a- s reflectc? tl
i n yesterday ' s re l e a s e .
The c o r r e c t i o n means t h a t Farmers has an o v e r a l l complaint
r a t i o of less tnan 1 . 0 0 ; t h u s , Farmers woulcl rrot autor! 13tical2y l-> c
a candidate for examination by tne Departntent: because of an excesr, i. ve
corr,?.?- dint r a t i o . Hocie-~ er, Director JJow inr3ic: ated t . i z c l t an examination
of t:, e claims paying p r a c t i c e s of Fai, mers has been t a k i n g place over
the p a s t two months. " That examinatj on w i l l czontinue u n t i l cornplet. ed
and the r e s u l t s ~ r i l . 1b e made p u b l i c , " Di~ rectorJ , ow said.
The t o t a l f i g u r e s f o r the p o l i c i e s i n f o r c e i n 1979 as set f o x t h
in t h e complaint r a t i o s w e r e v e r i f i e d w i t h e a c h i n d i v i d u a l company
( continued, page 2 ) SERVING
ARIZONA'S
INSURANCE
CONSUMERS
by Emil Barberich, the Chief of the Property and Casualty Division
of the Department. It is believed that the error with respect to
the number of Farmers policies was due to a mis~ nderstanding on the
part of a company official whom Plr. Barberich contacted. Regardless,
a
according to Director Low, " It is important that the Department
quickly correct this error."
ARIZONA PERSONAL LINES 1979
RATIO COMPLAINTS PER 1,000 POLICIES
No. Policies
In Force
1979 Complaints
32,022 8
Complaints
Per 7,000
Pol i ci es
0- 25
Rank Company
Continental Group
Westf i el d Companies
Home Insurance Group
USAA
Fi remen ' s Fund
Safeco
Transarnerica
Allstate
Royal Globe
St. Paul Insurance Co.
U. S. F. & G.
State Farm Mutual &
State Farm Fire & Cas.
Hartford Group
12 Traveler;
73 Farmers Group ' 14 Horace Flann
16 C~ miiiercai 1 Union
17 Central Nztional
18 Aetna Life & Casualty
19 Prudential Prop. & Cas.
0
Rank
2 0
2 1
22
23
2 4
25 .
2 6
2 7
28
2 9
30
3 1
32
3 3
34
3 5
36
3 7
3 8
No. Policies
In Force
Company 1979
Metropolitan Prop. & Cas. 3,751
Nationwide Insurance Co. 16,205
Summit Home 10,162
Ohio Casualty 12,079
Preferred Risk 6,796
Compl a i n t s
Per 1,000
Complaints Pol i ci es
a
Ambassador Insurance Co. 3,796 6 1.50 a
AID Insurance Co. 3,372 6 1.76
Coloni a1 Penn Insurance Co. 18,308 34 1.86
Colonial Insurance Co. ( L. A.) 8,141 16 7 - 98 a
IN A 7,914 17 2.15
Dai ryl and 24,110 58 2- 47
Equitable General 12,450 32 2.56 a
C i v i l Service Insurance Co. 4,390 16 3.64
Empl oyers ( Wausau)
Motors Insurance Co.
Arneri can Bankers
Globe American
Integrity Insurance Co.
Heritage Insurance Co.
ALL COMPANIES