DOI Earns NAIC Reaccreditation
New Companies, Departmental Regulation Add Competition to Market
DOI Unveils New Computer Software to Aid Elderly
Midwest Claimants Get $5 Million Owed
Department continues cleanup of Independence Life
DOI Wrangles Illicit Truck Insurance Agency, Investigation Continues
Fifth Circuit Rules In Favor of Rating Commission
Rate Regulators Keep Insurance Costs on Even Keel
New Brochure Offers Words To The Wise: Buyer Beware
The Department of Insurance has been granted reaccreditation by the National Association of Insurance Commissioners.
"The Louisiana Department of Insurance has demonstrated a commitment to professionalism and high performance standards," said NAIC President Brian Atchinson, Commissioner of Insurance for the State of Maine, in announcing the reaccreditation.
Accreditation means that the Department meets the standards of the NAIC for financial examination and regulation of solvency standards of insurance companies.
Reaccreditation was awarded after an NAIC team of insurance experts performed a thorough on- site examination of the Department to determine if the NAIC's standards were met.
The Department first won accreditation in 1993, after two years of intensive effort. Louisiana Insurance Commissioner Jim Brown said at the time, Louisiana was considered by many the state least likely to be accredited.
"We had to start from scratch, and the process involved complete reorganization of the Department," said Brown, who became commissioner in December 1991.
Louisiana was the first deep-South state to become accredited. It is now one of 47 states accredited by the NAIC.
The accreditation standards require that state regulators have adequate statutory and administrative authority to regulate insurers' financial affairs, and that they have the necessary resources to carry out that authority.
"Regulation for financial solvency is the heart of the mission of the Louisiana Department of Insurance, and we will continue an ongoing internal review process to ensure that we maintain the standards that allowed us to win accreditation," Brown said.
Seven insurance companies have dropped their auto insurance rates in recent months, leading to a savings of over $16 million for Louisiana insurance consumers.
“This is something we’ve been working on for four years now,” Insurance Commissioner Jim Brown said. “The people of Louisiana deserve to be able to purchase quality insurance at competitive rates.”
The most meaningful rate decrease so far, Brown said, has come from State Farm Mutual, which reduced its rates earlier this year by 1.8 percent, the equivalent of $10 million in consumer savings statewide.
State Farm Mutual currently controls 35 percent of the automobile insurance market in Louisiana.
“This is an exciting beginning that bodes well for the future,” Brown said.
Six other companies have recently won approval from the Insurance Rating Commission to reduce their automobile insurance rates.
United Services Automobile Association (USAA), which specializes in writing policies for veterans and military personnel, is reducing its rates approximately 6 percent, or $3.5 million, Brown said. Liberty Mutual Group is reducing its Private Passenger Automobile rates approximately 10 percent, or $2.5 million. American Indemnity is reducing its rates by 4.6 percent, and Safeco Group by 3.8 percent. Among other lines of carriers, Commercial General Liability and Commercial Automobile are reducing their rates as well.
Rates are dropping because the insurance market is becoming more competitive, Brown said.
“The insurance market has gotten more competitive because good companies are returning to our state,” Brown said. “We’ve cleaned out the bad companies and returned a strong, stable atmosphere to our insurance market.”
Brown also attributes dropping rates to declining claims frequency and the increasing use of road blocks to check for proof of insurance.
“One of the reasons our insurance rates are so high is that about 16 percent of state drivers do not have insurance,” Brown said. “In some parts of the state the percentage is much higher.”
Brown supported legislation in 1995 that set up road blocks and checked vehicles for insurance. In one week, 1,000 people who were driving without insurance were ticketed and 950 more had their license plates removed.
Brown said that if the state adopts car windshield insurance stickers that can be monitored by police with portable bar code readers, insurance rates could decrease as much as 20 percent.
Commissioner Brown is also trying to bring auto rates down by raising the age when teens can get a learner’s permit from 14 to 16 and requiring teens to take driver’s education.
The Commissioner said he expects major rate decreases in other areas of coverage to come soon.
More than 200 new companies have come to Louisiana to sell insurance since 1991, according to Department of Insurance statistics.
In 1994 alone, 73 companies were licensed to sell insurance here, statistics show.
“It is great news that so many new companies are coming to Louisiana, because more good companies equals more competition, which equals savings for consumers,” said Commissioner of Insurance Jim Brown.
In the last several months several companies have made requests to lower their rates, Brown said.
“New companies have been encouraged to come to the state because our Department has been cleaning up Louisiana’s insurance industry,” he said. “We have accomplished so much, and we are not slowing down now.”
If current trends hold, 2,000 insurance companies will be doing business in Louisiana by the end of 1996, statistics show.
"The requests to lower rates tell us that the increase of good companies is resulting in savings for consumers,” Brown said.
The Department's clean-up efforts have resulted not only in the entrance of more good companies, but also in the exit of bad companies, Brown said.
“We have either shut down the bad companies or they’ve left the state in fear,” he said.
From 1982 until 1992, the Department closed 34 financially troubled companies. Since 1992, Commissioner Brown's first full year of office, the Department has shut down 21 insolvent companies.
"We are very proud of our progress with liquidating troubled companies, but we will not rest on our laurels," Brown said. "We will continue to clean up Louisiana's insurance industry."
The Department of Insurance is the first insurance department in America to use new Benefits Outreach Screening Software (BOSS) that matches eligible seniors to the state and federal benefits they may be entitled to, Insurance Commissioner Jim Brown announced recently.
“There are many men and women over 60 years of age in Louisiana who are eligible for critical programs or assistance, but don’t know how to go through the complex enrollment process,” Brown said. “BOSS simplifies the process into one step.”
The software was introduced to more than 50 system trainees during a training session held at the Department of Insurance offices.
“With one visit to a Council on Aging office, a senior citizen can find out what Social Security and other benefits he or she could be receiving,” said Bobby Fontenot, director of the Governor's Office of Elderly Affairs. “The program will even return to the Council a completed application form that the senior may use for enrolling in key programs.”
The software package, which is being installed through joint effort of the DOI and the Office of Elderly Affairs, was developed by United Seniors Health Cooperative, a non-profit organization.
The service will be offered to senior citizens free of charge.
“A large number of senior citizens are unaware of the range of services and programs that exist to help them,” said Rosanne Kaufmann, director of the Department's Senior Health Insurance Information Program. “This can cause unnecessary suffering for older men and women faced with illness or medical emergencies when they are living on a fixed income.”
To utilize the BOSS program, seniors simply must go to their local Council on Aging office and fill out a two-page form with a Council staff member. The staff member will then introduce the completed form into the BOSS network and match the client to services and benefits for which they are eligible.
To find out when and where BOSS service will be available, contact the Department at 1-800-259- 5300.
The Department of Insurance mailed out more than 1,000 checks totaling $5 million in October to policyholders and claimants of Midwest Life Insurance Co.
Payments now total $22 million but liquidation efforts, including three lawsuits for recovery of funds, are still proceeding.
“We’re going to keep working to recover all the assets we can,” Insurance Commissioner Jim Brown said. “We have to because Midwest policyholders in Louisiana are not covered by a guaranty association.”
Most life insurance or property and casualty insurance companies in Louisiana belong to the Louisiana Life and Health Guaranty Association (LLHGA) or the Louisiana Insurance Guaranty Association (LIGA), two funds maintained by member company contributions. The Department forwards money from failed member companies to LLHGA or LIGA, which then pay claims filed against the failed companies. Midwest Life, however, went into receivership in 1991, before LLHGA was established.
“Insolvencies like that of Midwest Life were the result of weak insurance regulation,” Brown said. “We’ve since reorganized the department to spot financially troubled companies early on, before they turn into huge insolvencies.”
Midwest Life, which operated in 50 states and the District of Columbia, had 5,200 policyholders nationwide, including 1,650 in Louisiana. There were 1,000 claims against Midwest in Louisiana alone. The claims represent money owed in annuities and life and health insurance.
Midwest Life was one of a group of companies under Southshore Holding Corp. of Metairie, La.
Brown has filed a lawsuit under the authority of the federal racketeering act seeking more than $367 million in damages from a list of defendants accused of looting the assets of insurers in the Southshore group of companies.
The Department of Insurance sold about 250 pieces of land last August and earned over $500,000 for consumers owed money by Independence Life Insurance Co.
The real estate belonged to the estates of insolvent insurance companies in liquidation.
“We were happy to bring in this money to help pay the claims and obligations owed to consumers,” Insurance Commissioner Jim Brown said. “Independence Life’s demise was brought about by fraud and mismanagement, and it’s about time that this company’s customers got what they paid for.”
Other sales are tentatively scheduled, but Brown is eager to leave the land auctions behind. “We’re anxious to pay off as many claimants as possible so we can get out of the real estate business,” Brown said.
The Department, which has been reorganized since Brown took office in 1991, was one of the first in the Deep South to win accreditation by the National Association of Insurance Commissioners.
“This sale is only part of cleaning up the mess caused by 20 years of corruption and lax insurance regulation in our state,” Brown said.
All proceeds from the August 15 property sale will go to pay policyholders and claimants of Independence Life, which was placed into regulatory supervision by the Department of Insurance in April 1990.
As a result of the Department’s investigations into Independence Life’s troubles, six defendants were indicted for criminal wrongdoing in connection with the company’s demise: Four were tried and convicted, one pled guilty, and a sixth defendant died before he could be brought to justice.
Department of Insurance investigators and city police shut down United Services Insurance Agency of Baton Rouge in late November, seizing records and making an arrest related to alleged insurance fraud.
Insurance investigators served James S. Weidman with a cease and desist order at the United Services office. Weidman had an insurance license at one time, but he let it lapse six months before the arrest.
Insurance Commissioner Jim Brown said Weidman acted as an insurance agent, though he was not licensed to do so, and accepted money for policies without actually issuing them.
"He was selling policies to people all over this part of the state," Brown said. "People who thought they had insurance were paying for coverage that wasn't there."
The Department of Insurance served Weidman with a cease and desist order based on evidence that the suspect accepted $257,000 in premiums for insurance coverage with U.S. Capital Insurance Company. However, the money was never remitted to the insurer.
The policies sold were mostly for commercial general liability insurance covering local dump truck and logging truck businesses.
Brown said the investigation is continuing and that the Department has identified at least $400,000 in premiums which are suspected of being accepted by Weidman without legitimate insurance being provided.
Companies that have done business with United Services may contact the Consumer Affairs Division of the DOI for more information.
The U.S. Fifth Circuit Court of Appeals rejected a $400 million lawsuit for damages brought against insurance rate regulators by Liberty Mutual Insurance Co., which claimed it was wrongly denied rate increases for workers’ compensation insurance.
“This ruling is a victory for policyholders because it upholds the Louisiana Insurance Rating Commission’s authority to deny rate increases considered to be unfair,” said Insurance Commissioner Jim Brown, a defendant in the lawsuit.
The Fifth Circuit remanded the case back to U.S. District Court with instructions to dismiss it.
Liberty Mutual claimed that the Louisiana Insurance Rating Commission violated federal and state constitutions by denying rate increases for workers’ compensation insurance. The insurance company claimed that the rates allowed by the Insurance Rating Commission amounted to confiscation of the insurers’ property.
“As plaintiff,” the court wrote in its August 11 ruling, “Liberty Mutual bears the burden of proving that, under Louisiana law...any attempt to seek compensation via state procedures would have been futile.... It did not do so.”
The insurance rates disputed were those in the so-called “assigned risk” market, otherwise known as the involuntary market.
What, exactly, is the Louisiana Insurance Rating Commission, and how does the board decide which companies can and can’t raise their rates?
The commission was set up to review insurance rate and rule filings to ensure that rates are not excessive, inadequate or unfairly discriminatory.
The six board members are appointed or reappointed by the governor at the outset of his term, and must be approved by the state senate. The Commissioner of Insurance serves as the board's ex officio chairman.
Once in office, the board meets monthly to consider all insurance rate and rule changes--about 200 each month--submitted to it.
In some states, called “file and use” states, insurance companies can change their rates at will, but must receive state approval of the changes within a certain amount of time for the rates to take permanent effect. In Louisiana, as in other “prior approval”states, companies cannot change their rates without first getting the rating commission's approval.
The prior approval method is used in order to protect the public from unfair and possibly damaging insurance practices such as excessively high insurance rates, inadequate rates and/or unfairly discriminatory rates.
The board rules against rate increases when an increase is deemed excessive, or unreasonable, such as when a company can easily pay its claims and is earning a profit from its premiums, yet wants a rate increase simply to add extreme profit.
When a company's rates are already low and the company does not have enough money to pay its consumers' insurance claims, the commission must deny that company a rate decrease.
The board may also rule against rate changes when they are deemed unfairly discriminatory, as in the practice of "redlining," when a company purposely attempts to raise its rates in one area of the state so high that no one can afford coverage and the company doesn't have to write policies there.
No matter the case, the board relies on actuarial support before making its decision. Using complex formulas and vast amounts of data, it must look at a company's past and, in effect, be able to project its future under the proposed rate change.
In the end, however, the rating commission serves and protects the public interest by relying on the sound judgment of a company's underwriting, marketing, claims handling and administrative abilities, all of which can affect a company's well-being.
It's the best way the state has to ensure a safe, fair market for everyone who buys insurance in Louisiana.
“Buyer Beware” is the message behind a new fraud brochure soon to be released by the Department of Insurance.
“Too many consumers are falling prey to dishonest agents' insurance schemes,” said Insurance Commissioner Jim Brown.
“With this brochure, we hope to teach consumers about some common fraud schemes, so they don’t have to be the next victims."
"Fraudulent claims are costing insurance carriers more than $100 billion every year," according to Best's Review.
“Insurance fraud in general costs the typical policy holder about $200 a year,” Brown said.
One way the Department is trying to crack down on fraud is by educating consumers, Brown said.
The brochure helps make consumers aware of things they can do to stop insurance fraud.
The most basic of these tips: Do not buy the first policy you find, shop around for price and policy features, and be careful to only buy from authorized companies and agents.
The brochure also explains in detail five common schemes that consumers often fall prey to, Brown said.
Many consumers may not even be aware of these schemes and thus are more susceptible to being taken by them, he said.
“By being more aware of the fraud traps, consumers can learn to stay out of them,” he said.
Free copies of the brochure can be obtained through the Department’s toll-free hotline at 1-800- 259-5300 or 5301.
Victims of insurance fraud or those who have information about someone committing insurance fraud, should call the Fraud Division of the Department of Insurance at (504) 342-4956.