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					Comments of the Center for Economic Justice Regarding Additional Lines of Insurance for
                        the Market Conduct Annual Statement

    Submitted to the Market Analysis Procedures Working Group of the Market Information
   Systems (D) Task Force of Market Regulation and Consumer Affairs (D) Committee of the
                      National Association of Insurance Commissioners

                                       Revised June 3, 2011


In response to the request by the MAP working group, The Center for Economic Justice (CEJ)
provides the following comments.
   1. MCAS must include a data field or fields for claim denials.
Absolute levels and changes in levels over time of claims denied are essential data for market
analysis and must be included in the MCAS.

As with many types of data elements, definitions and tracking of the data vary across insurers.
Such variation across insurers creates difficulty in consistent reporting of the data elements
within MCAS across insurers. Such difficulty is, however, not a rationale for abandoning the
data element – no more than differences in insurer methods of counting claims (occurrence
versus claimant) was a rationale for abandoning collection of claims data.

MAP members do not currently have information to determine whether the vast majority of
insurers utilize similar definitions for claim denials. In any event, we suggest that two or three
states survey insurers operating in their states on how they define and track claims and claim
denials. By going directly to insurers, you can find out exactly what insurers do can then craft
the MCAS definitions to that. The request might be along the lines of:

       For each line of insurance (private passenger auto, residential property, life and
       annuities), please describe your procedure for tracking claims within your company's
       electronic database from initially learning about a claim to final claim disposition. Under
       what circumstances is a claim opened? Under what circumstances is a claim closed?
       How do you identify a denied claim by reason for denial?

       Please identify your company's database(s) used to track claims and describe the fields in
       the database(s) used to track the status of a claim. Please provide the categories you
       utilize to describe the status of a claim and the definition of each status category. Please
       also provide the reason codes you utilize for any of the status categories. For example, if
       you utilize a status category of claim denied or claim closed without payment, please
       provide the list of reason codes (with definition of the reason codes) associated with that
       status category.

It is imperative that MAP WG members make decisions based on reliable information and not on
the basis of anecdotes. MAP WG members should not make decisions based on a few unusual
insurers’ practices or limitations.
CEJ Response to Questions Posed by MAP WG
Revised June 3, 2011
Page 2


Finally, it may be that the best approach to collect data on claim denials is to utilize two or more
data fields instead of one “claims denied” field. But, the best approach to collecting reliable data
will emerge after regulators query insurers on claim tracking, as set out above.
      2. Collection of Consumer Credit Information in MCAS
CEJ supports the addition of consumer credit lines of insurance in MCAS. Credit insurers
already report some data on consumer credit insurance in the Credit Insurance Experience
Exhibit (CIEE) supplement to the Annual Statement. The data are reported by type of credit
insurance product by state – state-specific data are currently reported.

2.1      Description of Existing Credit Data Collected Through the CIEE and by States

The CIEE data are designed primarily for rate regulation and provide the premiums, losses and
compensation data relevant for implementing the NAIC model credit insurance laws and
regulation. As discussed below, the addition of data on number of policies / certificates, number
of claims, time to settle claims and consumer complaints integrates nicely with the current CIEE
data. In the following sections, we describe the data included in the CIEE.

2.11 Credit Life: The CIEE includes data for credit life broken out for monthly outstanding
balance (MOB) and single premium (SP) products and by single life (Single) and joint life
(Joint). MOB refers to premium payments made monthly on the basis of the outstanding balance
of the loan. SP refers to a single premium payment upfront covering the entire term of the
coverage. Single life refers to coverage for the borrower only. Joint life refers to coverage for the
borrower and spouse. For credit life, the CIEE data elements are

1.1   Gross written premiums
1.2   Refunds on terminations
1.3   Net written premiums (Lines 1.1–1.2)
1.4   Premium reserves, start of period
1.5   Premium reserves, end of period
1.6   Actual earned premiums (Lines 1.3+1.4–1.5)
1.7   Earned premiums at prima facie rates
2.1   Claims paid
2.2   Unreported claim reserve, start of period
2.3   Unreported claim reserve, end of period
2.4   Claim reserves, start of period
2.5   Claim reserves, end of period
2.6   Incurred claims (Lines 2.1–2.2+2.3–2.4+2.5)
3.1   Commissions and service fees incurred
3.2   Other incurred compensation
3.3   Total incurred compensation (Lines 3.1+3.2)
3.4   Commissions / service fee percentage (Lines 3.1/1.3)
3.5   Other incurred compensation percentage (Lines 3.2/1.6)
4.1   Actual loss percentage (Lines 2.6/1.6)
CEJ Response to Questions Posed by MAP WG
Revised June 3, 2011
Page 3


4.2 Loss percentage at prima facie rates (Lines 2.6/1.7)
5. Mean insurance in force
6. Losses per $1,000 mean insurance in force [(1,000 x Line 2.6)/Line 5]

2.1.2 Credit Disability: Credit disability data are broken out by type of loan and premium
payment: SP, MOB on open-end loans and MOB on closed-end loans. Open-end loans are
revolving credit, like credit cards or lines of credit. Closed-end loans are fixed term loans, like
an auto loan. There is also a fourth major category for Other.

Within the three type of loan / type of premium payment groups, the data are further broken
down by waiting period and eligibility: 7-day retroactive coverage, 14-day retroactive coverage,
14-day non-retroactive coverage, 30-day retroactive coverage and 30-day non-retroactive
coverage. There is also an Other category in each of three type of loan / type of premium
payment groups.

The credit disability data elements are identical to those for credit life from 1.1 through 4.2.
Elements 5 and 6 for credit life are not reported for credit disability.

2.1.3 Credit Involuntary Unemployment: Credit IUI data are broken out by type of premium
payment and waiting period: SP 30-day retroactive, SP 30-day non-retroactive, MOB 30-day
retroactive, 30-day non-retroactive and Other. The Other category is large for credit IUI because
of new types of credit IUI products, like full balance payment after 90 days of unemployment.

The data elements for credit IUI are identical to those for credit disability.

2.1.4 Credit Personal Property: Data are reported for the following additional consumer credit
insurance products:


          Creditor-placed home (single interest)
          Creditor-placed home (dual interest)
          Creditor-placed auto (single interest)
          Creditor-placed auto (dual interest)
          Personal property (single interest)
          Personal property (dual interest)
          Other credit property
Creditor-placed (Lender-placed) insurance is insurance placed by a lender on collateral
supporting a consumer loan in the event the borrower fails to maintain required insurance
coverage. For example, a mortgage lender will require property insurance to protect the real
estate serving as collateral for the loan. An auto lender will require auto insurance physical
damage coverage to protect the automobile serving as collateral for the loan. Lenders (or, more
typically, the insurer providing the LPI and administering the program for the lender) monitor
the insurance status of the property and auto loans to ensure the required insurance is in place. If
the lender or insurer/program administrator determines the insurance is not in place, an insurance
CEJ Response to Questions Posed by MAP WG
Revised June 3, 2011
Page 4


policy (or certificate on a group policy) is issued to cover the property or auto. The cost of the
force-placed insurance is added to the loan.

The incentives and potential for abuse in the administration of LPI are great. Consumers do not
request the insurance, but are forced to pay for it. The cost of LPI is much higher than a policy
the borrower would purchase on his or her own. Lenders have incentive to force-place the
insurance because the premium includes a commission to the lender and, in some cases, the
insurance is reinsured through a captive reinsurer of the lender, resulting in additional revenue to
the lender from the force-placement of the coverage. We attach a recent article about abuses in
the LPI market.

The amount of LPI force-placed has grown dramatically in recent years, particularly for
residential property LPI. According to Credit Insurance Experience Exhibit Data, residential
property LPI premiums grew from about $1.5 billion in 2004 to over $5 billion in 2009. The
CIEE shows that refunds were between 42% and 50% of premium during those years. For auto
LPI, gross premium has been about $2 billion a year for most years with two-thirds refunded.
The data elements for the credit property lines are almost identical to those for credit disability
and credit IUI. The credit property data does not include the two unreported claim reserve data
items and adds the following countrywide (not broken out by state) data elements:

1.1 Direct written premiums
1.2 Direct earned premiums
2.1 Commissions and brokerage expenses incurred
2.2 Taxes, licenses and fees incurred
2.3 Other acquisitions, field supervision and collection expenses incurred
2.4 General expenses incurred

2.1.5 Other Credit: There is another page in the CIEE and it includes data on credit family
leave, credit GAP insurance and all Other. Credit family makes monthly loan payments in the
event a borrower goes on family leave, typically family leave per federal law. Credit GAP
coverage pays the difference between the market value of a totaled vehicle (the amount provided
by the physical damage coverage) and the amount remaining on the loan. Credit GAP pays off
when the amount remaining on the loan is greater than the amount paid by the primary physical
damage insurance coverage. Other credit might include non-filing insurance.

The data elements reported for Other Credit are the same as for credit disability with the
exception of the two unreported claim reserve data items.

In terms of premium volume, creditor-placed insurance is the most important credit insurance
product at this time. The premium volume for creditor-placed insurance in 2009 (about $7
billion) was more than twice as much as all other consumer credit insurance products combined.
Credit life and credit disability premiums were about $1 billion each.
CEJ Response to Questions Posed by MAP WG
Revised June 3, 2011
Page 5


2.1.6 Additional Consumer Credit Data Collected by Some States

A number of states collect additional consumer credit data, primarily for ratemaking purposes.
Texas periodically collects credit life and credit disability data with a similar breakout to that of
the CIEE with one major exception – a further breakout by class of business (the type of
producer / lender selling the credit insurance for the credit insurance company). The classes used
by Texas are:

          Commercial Banks, Savings & Loan Associations and Mortgage Companies
          Finance Companies, Small Loan Companies
          Credit Unions
          Production Credit Associations (Agricultural & Horticultural P. C. A. s)
          Dealers (Auto & Truck Dealers, Other Dealers, Retail Stores, Etc.)
          Other
Data broken out by type of lender are reported because the experience varies significantly across
different types of lenders. For example, auto dealers tend to sell SP credit insurance with very
low loss ratios, while credit unions tend to sell MOB products with historically different loss
ratios from commercial banks.

Massachusetts collects credit life, disability and involuntary unemployment data and breaks out
auto dealers from other types of lenders.

North Carolina collects consumer credit insurance data similar to the CIEE, but with a more
detailed (by type of product) credit property report. For example credit non-filing insurance is
separately reported.


2.2 Additional Data Elements Needed for Market Analysis

The data elements missing from the CIEE and which would be useful for market analysis the
following which would be reported at the same level of detail as CIEE data (at product, type of
loan, type of premium, eligibility, producer (lender) and by state):
   1. Number of policies/certificates in force at beginning of period
   2. Number of policies/certificates added during period
   3. Number of policies/certificates canceled with a refund during period
   4. Number of policies/certificates canceled without a refund during period
   5. Number of policies/certificates with expiring coverage during period
   6. Number of policies/certificates in force at end of the period (1 + 2 – 3 – 4 -5)
   7. Number of outstanding claims at beginning of period
   8. Number of new claims filed during period
   9. Number of claims with coverage terminating during period
   10. Number of claims denied during period for ineligibility
   11. Number of claims denied during period for insufficient documentation
CEJ Response to Questions Posed by MAP WG
Revised June 3, 2011
Page 6


   12. Number of claims denied or otherwise closed without payment during period for all other
       reasons
   13. Number of outstanding claims at end of period.
   14. Median days from notice of claim to first claim payment for claims with first payment
       during the period.
   15. Mean days from notice of claim to first claim payment for claims with first payment
       during the period.
   16. Median days from notice of claim to advisement of claim denial for claims denied during
       the period.
   17. Mean days from notice of claim to advisement of claim denial for claims denied during
       the period.
   18. Number of claims with payment within 60 days of date of proof of loss during period
   19. Number of claims with payment beyond 60 days of date of proof of loss during period
   20. Number of complaints received directly from consumers
   21. Number of complaints received from state department of insurance
   22. Complaint register indicator
2.2.1 Breakout by Lender: Reporting of MCAS consumer credit data broken out by lender
would be very useful for market analysis. By reporting sales, refunds, cancellation and claims
experience by lender account, the market analyst can identify problems associated with a
particular producer of the credit insurance. Since credit insurance is only sold in connection with
a loan and is typically sold by the lender on behalf of the credit insurance company, it would be
more effective and efficient for the market analyst to determine if there were anomalies /
potential problems associated with a particular lender or generally for the insurer. In addition,
the ratios analyzed by the market analyst will likely vary by type of lender; differences will
likely appear between lenders selling MOB products on small loan amounts versus lenders
selling SP products on larger loan amounts.

The data should be reported by individual lender with a description of the type of lender using
one of the following categories:

          Banks, Savings & Loans, Thrifts
          Auto Dealers
          Credit Unions
          Other Retail Dealers
          Finance Companies, Small Loan Companies
          Other
2.3 Needed Improvements to the CIEE

Although the instructions for reporting CIEE data are explicit, a number of insurers misreport
data – primarily by not reporting data for particular products in the appropriate product category
and by not providing the required explanation of entries in “Other” categories. Lender-placed
insurance continues to be reported in Other categories, for example. These problems can be
CEJ Response to Questions Posed by MAP WG
Revised June 3, 2011
Page 7


resolved by the NAIC or states reviewing the CIEE submissions and requiring insurers to correct
faulty or clarify questionable submissions.

2.4 Other Annual Statement Consumer Credit Data of Limited Use

In the main portion of the statutory annual statement, insurers report some information on credit
life and credit disability. The data are of limited use for various reasons, but, in any event, there
are no credit data in the Annual Statement more useful or informative than the credit data
presented in the CIEE.

2.5 Test Line for Transaction Reporting

Lender-placed insurance (LPI) is an excellent type of insurance to examine the costs and benefits
of transaction reporting.

CEJ has presented the case for transaction-level reporting over summary reporting of MCAS
data on many occasions. Transaction data allows regulators to better ensure data quality and
reliability, provides more consistent data for analysis across insurers, allows regulators to
perform data mining and predictive analytics to better identify market or company problems and
provides a more efficient method of market surveillance.

LPI is an ideal type of insurance to test transaction reporting of MCAS data because there are
very few insurers who sell LPI and the number of transactions is relatively small. Two insurance
groups (Assurant, Balboa) accounted for 99% of 2009 residential property LPI gross written
premium. No more than seven additional insurers wrote over $1 million in2009 gross written
premium. For auto LPI, fewer than 20 insurance groups wrote over $1 million in 2009 gross
written premium, including several of the same large writers of residential property LPI.

The number of LPI transactions annually will be in the millions. Compared to the tens or
hundreds of millions of transactions in the each of the current MCAS lines, the number of
transactions is relatively small. The centralized data collection and compilation capabilities of
the NAIC can easily manage four databases (auto sales, auto claims, property sales, property
claims) with several million (sales) or several thousand (claims) records from fewer than two
dozen reporting insurer groups.

In addition to collecting, checking for data quality and compiling the data, the NAIC could
produce standard analyses, including data mining for unusual characteristics of sales or claims.

2.5.1 Transaction Data Elements

Insurers writing more than a threshold amount of auto or residential property LPI would report
two data sets – sales data and claims data. The sales data would include a record for each
borrower for whom the insurance was placed during the reporting year, while the claims data
would include a record for each claim for which there was activity during the reporting year.
The two data sets would have one common field – borrower identification number – to allow for
CEJ Response to Questions Posed by MAP WG
Revised June 3, 2011
Page 8


matching of claim records to sales characteristics. Tables 1 and 2 suggest data fields for the sales
and claims reports, respectively.

We welcome the opportunity to discuss our recommendation with regulators and interested
parties in more detail.
CEJ Response to Questions Posed by MAP WG
Revised June 3, 2011
Page 9


Table 1: Sales Records Fields
   a.  NAIC Company Code of Reporting Company
   b.  Insurer Group
   c.  Program (Sales) Administrator
   d.  Producer
   e.  General Agency or Managing General Agency
   f.  Lender
   g.  Lender Program Identifier
   h.  Experience Period Reported
   i.  Type of Collateral (Auto or Real Property)
   j.  Type of Coverage Placed (if more than one type of auto or more than one type of
       property coverage used)
   k. Borrower Identification Number
   l. Census Block Tract Location of Collateral Insured
   m. Date Insurance Placed
   n. Term of Coverage
   o. Value Basis for Premium Calculation
   p. Amount Used as Basis for Premium Calculation
   q. Other Rating Factors Used (multiple fields)
   r. Dollar Amount of Premium for Coverage
   s. Dollar Amount of Additional Fees Charged
   t. Description of Additional Fees
   u. Date Administrator, Lender or Insurer notified of consumer purchase of required
       insurance
   v. Date Coverage Removed because consumer has required insurance in place
   w. Dollar Amount of Refund
   x. Method of Refund Calculation
   y. Coverage Canceled by Insurer for Reason Other Than Consumer purchase of required
       insurance
   z. Date of Insurer Cancelation
   aa. Reason for Insurer Cancelation
   bb. Lawsuit filed by borrower regarding this insurance placement
   cc. Consumer complaint received by insurer from any source regarding placement of this
       insurance
   dd. Reason for complaint
   ee. Resolution of complaint as of end of reporting period
   ff. Lawsuit filed by borrower regarding this insurance placement
   gg. Date of lawsuit filed by borrower regarding this claim
   hh. Status of lawsuit at end of reporting period
Table 2: Claims Records Fields
   a. NAIC Company Code of Reporting Company
   b. Insurer Group
   c. Claims Administrator
CEJ Response to Questions Posed by MAP WG
Revised June 3, 2011
Page 10


   d.   Lender Program Identifier
   e.   Borrower Identification Number
   f.   Date Claim Opened
   g.   Date of Loss
   h.   Cause of Loss
   i.   Status of Claim as of end of Reporting Period
   j.   Amount Paid to Settle Claim as of end of Reporting Period
   k.   Date of final claim resolution
   l.   If Denied or Closed Without Payment, Reason for Action
   m.   Claim identified as suspicious by insurer or claims administrator
   n.   Consumer complaint received by insurer from any source regarding settlement of this
        claim
   o.   Reason for complaint
   p.   Resolution of complaint as of end of reporting period
   q.   Lawsuit filed by borrower regarding this claim
   r.   Date of lawsuit filed by borrower regarding this claim
   s.   Status of lawsuit filed by borrower regarding this claim as of end of reporting period
   t.   Lawsuit filed by lender regarding this claim
   u.   Date of lawsuit filed by lender regarding this claim
   v.   Status of lawsuit filed by lender regarding this claim as of end of reporting period
   w.   Lawsuit filed by insurer regarding this claim
   x.   Date of lawsuit filed by insurer regarding this claim
   y.   Status of lawsuit filed by insurer regarding this claim as of end of reporting period

				
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