MARKET CONDUCT EXAMINATION OF PAFCO GENERAL INSURANCE COMPANY

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					Market Conduct Examination                                  Pafco General Insurance Company




       PAFCO GENERAL INSURANCE COMPANY
                                 4720 Kingsway Drive
                              Indianapolis, Indiana 46205




                             NAIC COMPANY CODE 29572




        MARKET CONDUCT EXAMINATION REPORT
                                  as of June 30, 2001




                PREPARED BY INDEPENDENT CONTRACTORS FOR THE
                COLORADO DEPARTMENT OF REGULATORY AGENCIES
                            DIVISION OF INSURANCE
Market Conduct Examination                               Pafco General Insurance Company




                                 James T. Axman, CIE
                               Kathleen M. Bergan, AIE
                         Independent Market Conduct Examiners
                            Working in Coordination with the
                             Colorado Division of Insurance
                               1560 Broadway, Suite 850
                                Denver, Colorado 80202
                                     (303) 894-7499




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Market Conduct Examination                               Pafco General Insurance Company




                    PAFCO GENERAL INSURANCE COMPANY
                              4720 Kingsway Drive
                           Indianapolis, Indiana 46205




                                MARKET CONDUCT
                               EXAMINATION REPORT
                                       as of
                                   June 30, 2001




                                      Prepared by
                                  James T. Axman, CIE
                                Kathleen M. Bergan, AIE
                             Independent Contract Examiners




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Market Conduct Examination                                Pafco General Insurance Company




                                    April 17, 2002



The Honorable William Kirven III
Commissioner of Insurance
State of Colorado
1560 Broadway Suite 850
Denver, Colorado 80202

Commissioner Kirven:

In accordance with §§ 10-1-203 and 10-3-1106, C.R.S., an examination of selected
underwriting, rating and claims practices of the Pafco General Insurance Company’s
private passenger automobile business, has been conducted. The Company’s records
were examined at their home office located at 4720 Kingsway Drive, Indianapolis,
Indiana 46205. The examination covered a one-year period from July 1, 2000 to June 30,
2001.

A report of the examination of the Pafco General Insurance Company is, herewith,
respectfully submitted.




                                           ___________________________
                                                 James T. Axman, CIE

                                           ____________________________
                                                 Kathleen M. Bergan, AIE

                                           Independent Market Conduct Examiners




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     Market Conduct Examination                                                           Pafco General Insurance Company




                              MARKET CONDUCT
                            EXAMINATION REPORT
                                  OF THE
                     PAFCO GENERAL INSURANCE COMPANY



                                         TABLE OF CONTENTS

SECTION                                                                                                           PAGE

I.     COMPANY PROFILE……………………………………………...………….                                                                    6

II.    PURPOSE AND SCOPE OF EXAMINATION……………………………….                                                               7

III. EXAMINATION REPORT SUMMARY………………………….…………..                                                                   9

IV. PERTINENT FACTUAL FINDINGS…………………………………………                                                                     10

             A.   PRIVATE PASSENGER AUTO

                      1. Underwriting..........................................................................    11
                      2. Claim Practices ..................................................…................       22

V.     SUMMARY OF RECOMMENDATIONS………………………….…………                                                                   27

VI. EXAMINATION REPORT SUBMISSION………………………..………….                                                                  28




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Market Conduct Examination                                                 Pafco General Insurance Company


                                        COMPANY PROFILE

                      PAFCO GENERAL INSURANCE COMPANY

Symons International Group, Inc. (“SIG”) incorporated Pafco General Insurance
Company, (“Company”) in 1987 as a stock property and casualty insurance company.
SIG is a public company traded on the OTC Bulletin Board. The largest shareholder of
SIG is Goran Capital Inc. (‘Goran”), who owned 73% of SIG as of December 31, 2001.
Goran is a Canadian federally chartered company trading on the Toronto Stock Exchange
and the OTC Bulletin Board.

In 1996 the corporate structure changed to facilitate a business relationship with Goldman
Sachs & Co. These changes resulted in Superior Insurance Group, Inc (f/k/a GGS
Management, Inc.) owning 100% of the Company’s stock.

The purpose of the Company is to provide personal lines automobile insurance, typically
non-standard auto, to Midwest markets. The Company is authorized to transact business
in Colorado, Indiana, Iowa, Kentucky, Missouri, Nebraska, Nevada, Oklahoma and South
Dakota.

As of the calendar year ending December 31, 2000, the Company had reported
$6,500,000 in private passenger automobile written premium in Colorado, representing a
.29% market share. *




*Data as reported in the Colorado Insurance Industry Statistical Report.




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Market Conduct Examination                                   Pafco General Insurance Company




                PURPOSE AND SCOPE OF EXAMINATION
This market conduct report was prepared by independent examiners contracting with the
Colorado Division of Insurance for the purpose of auditing certain business practices of
insurers licensed to conduct the business of insurance in the State of Colorado. This
procedure is in accordance with Colorado Insurance Law §10-1-204, C.R.S., which
empowers the Commissioner to supplement his resources to conduct market conduct
examinations. The findings in this report, including all work product developed in the
production of this report, are the sole property of the Colorado Division of Insurance.

The purpose of the examination was to determine the Company's compliance with
Colorado insurance law and with generally accepted operating principles related to
Private Passenger Automobile insurance laws. Examination information contained in this
report should serve only these purposes. The conclusions and findings of this
examination are public record. The preceding statements are not intended to limit or
restrict the distribution of this report.

This examination was governed by, and performed in accordance with, procedures
developed by the National Association of Insurance Commissioners and the Colorado
Division of Insurance. In reviewing material for this report the examiners relied
primarily on records and material maintained by the Company. The examination covered
a twelve (12) month period of the Company’s operations, from July 1, 2000 to June 30,
2001.

File sampling was based on a review of underwriting and claim files that were
systematically selected using Audit Command Language (ACL) software and computer
data files provided by the company. Sample sizes were chosen based on procedures
developed by the National Association of Insurance Commissioners. Upon review of
each file any concerns or discrepancies were noted on comment forms and delivered to
the Company for review. Once the Company was advised of a finding contained in a
comment form, the Company had the opportunity to respond. For each finding the
Company was requested to agree, disagree or otherwise justify the Company’s noted
action. At the conclusion of each sample the Company was provided a summary of the
findings for that sample. The examination report is a report by exception. Therefore,
much of the material reviewed is not addressed in this written report. Reference to any
practices, procedures, or files, which manifested no improprieties, was omitted.

An error tolerance level of plus or minus $10.00 was allowed in most cases involving
monetary values. However, in cases where monetary values were generated by the
computer, a $0 tolerance level was applied in order to identify possible system errors.




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Market Conduct Examination                                  Pafco General Insurance Company


Additionally, a $0 tolerance level was applied in exceptions where there appeared to be a
consistent pattern of deviation from the Company’s rates, on file with the Colorado
Division of Insurance.

The report addresses only Private Passenger Automobile issues and contains information
regarding exceptions to the Colorado insurance law. The examination included review of
the following four (4) Company operations:

       1.   Complaint Handling
       2.   Underwriting
       3.   Rating
       4.   Claim Practices

Certain unacceptable or non-complying practices may not have been discovered in the
course of this examination. Additionally, findings may not be material to all areas that
would serve to assist the Commissioner. Failure to identify or criticize specific Company
practices does not constitute acceptance by the Colorado Division of Insurance.
Examination findings may result in administrative action by the Division of Insurance.




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Market Conduct Examination                                     Pafco General Insurance Company


                    EXAMINATION REPORT SUMMARY
The examination resulted in nine (9) issues arising from the Company’s apparent failure
to comply with Colorado insurance law that govern all property and casualty insurers
operating in Colorado. These issues involved the following categories:

Complaint Handling:

In the area of complaint handling, no compliance issues are addressed in this report.

Underwriting:

In the area of underwriting, seven (7) compliance issues are addressed in this report.
These issues arise from Colorado insurance law requirements that must be complied with
whenever policies are issued, canceled, rejected, non-renewed, or surcharged. The
incidence of noncompliance in the underwriting area exhibited a frequency range of 5.0%
to 100%.

It is recommended that the Company review its underwriting practices and procedures
and make necessary changes to ensure future compliance with Colorado insurance law.

Rating:

In the area of rating, no compliance issues are addressed in this report.

Claim Practices:

In the area of claim practices, two (2) compliance issues are addressed in this report.
These issues arise from Colorado insurance law requirements dealing with the fair and
equitable settlement of claims, claims handling practices, payment of PIP (Personal
Injury Protection) claim benefits, maintenance of records, and the timeliness and
accuracy of claim payments. The incidence of noncompliance in the claims area
exhibited a frequency range of 20.0% to 31.0%.

It is recommended that the Company review its claim handling practices and procedures
and make necessary changes to assure compliance with Colorado insurance law.




                                              9
Market Conduct Examination             Pafco General Insurance Company




           PAFCO GENERAL INSURANCE COMPANY




                   PERTINENT FACTUAL FINDINGS




                               10
Market Conduct Examination                  Pafco General Insurance Company




                   PERTINENT FACTUAL FINDINGS




                             UNDERWRITING




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Market Conduct Examination                                   Pafco General Insurance Company




Issue A: Failure of the company to file an annual forms certification
with the Division of Insurance.

Section 10-4-725, C.R.S., Certification of policy and notice forms, states:

       (1) All insurers providing automobile insurance and who are authorized by
       the commissioner to conduct business in Colorado shall submit an annual
       report to the commissioner listing any policy forms, endorsements,
       cancellation notices, renewal notices, disclosure forms, notices of
       proposed premium increases, notices of proposed reductions in coverage,
       and such other forms as may be requested by the commissioner issued or
       delivered to any policyholder in Colorado. Such listing shall be submitted
       by July 15, 1993, and not later than July 1 of each subsequent year and
       shall contain a certification by an officer of the organization that to the
       best of the officer's knowledge each policy form, endorsement, or notice
       form in use complies with Colorado insurance law. The necessary
       elements of the certification shall be determined by the commissioner.

       (2) All insurers providing automobile insurance and who are authorized by
       the commissioner to conduct business in Colorado shall also submit to the
       commissioner a list of any new policy form, endorsement, cancellation
       notice, renewal notice, disclosure form, notice of proposed premium
       increase, notice of proposed reductions in coverage, and any other form as
       may be requested by the commissioner at least thirty-one (31) days before
       using such policy form, endorsement, cancellation notice, renewal notice,
       disclosure form, notice of proposed premium increase, notice of proposed
       reductions in coverage, and any other form as may be requested by the
       commissioner. Such listing shall also contain a certification by an officer
       of the organization that to the best of the officer's knowledge each new
       policy form, endorsement, or notice form proposed to be used complies
       with Colorado insurance law. The necessary elements of the certification
       shall be determined by the commissioner.

Additionally, Colorado Regulation 1-1-6. Concerning the Elements of Certification for
Accident and Health forms, Automobile Private Passenger Forms, and Claims-Made
Liability Forms, promulgated under the authority of Section 10-1-109, C.R.S., effective
June 1, 1994, states, in part:

       III. Rules
               A. Definitions
       1. "Annual Report for automobile private passenger insurance" shall
       mean a list of all automobile private passenger policy forms,
       endorsements, cancellation notices, renewal notices, disclosure forms,
       notices of proposed premium increases, notices of reductions in coverage



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Market Conduct Examination                                   Pafco General Insurance Company


       and any other such forms as requested by the commissioner currently in
       use and issued or delivered to any policyholder in Colorado, including the
       titles of the programs or products affected by the forms.

The Colorado insurance law requires that the Company submit a complete annual
certification report to the commissioner listing any form, endorsement, or rider delivered
to any policyholder in Colorado. According to the filed documents provided by the
Company, the last annual forms certification made to the Division of Insurance was
certified on November 8, 1999, therefore, all forms used by the Company during the
exam period were considered to be uncertified. As a result of this examination issue, the
Company has since filed a complete forms certification to the Division of Insurance on
March 29, 2002.


Recommendation # 1:

Within 30 days, the Company should provide documentation demonstrating why it
should not be considered in violation of Section 10-4-725, C.R.S. and Colorado
Regulation 1-1-6. In the event the Company is unable to provide such documentation, it
should be required to provide evidence to the Division of Insurance that it has reviewed
all procedures relating to the annual forms certification filing and implemented necessary
changes to ensure compliance with Colorado insurance law.




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Market Conduct Examination                                   Pafco General Insurance Company




Issue B: Failure of the company to offer $100 collision deductible.

Section 10-4-710, C.R.S., Required coverages are minimum, states, in part:

       (3) All insurers shall offer collision coverage for damage to insured
       motor vehicles subject to deductibles of one hundred dollars and two
       hundred fifty dollars. Insurers may offer such other reasonable
       deductibles as they deem appropriate. Collision coverage shall provide
       insurance without regard to fault against accidental property damages to
       the insured motor vehicle with another motor vehicle or motor vehicle
       caused by physical contact of the insured with another object or by upset
       of the insured motor vehicle, if the accident occurs within the United
       States, its territories or possessions, Canada, or Mexico.

The Company’s underwriting manual, pg 5 of CO (09/00), displayed the following
provision:

       Coverages Available

               COMPREHENSIVE AND COLLISION,
               " available deductibles: $250, $500, and $1000".

The Company’s underwriting manual did not contain a provision for a $100 deductible
option to be offered to new business applicants as required by Colorado insurance law. It
was also noted that on all new business applications (SP 501 CO) and in rating software,
no selection was available for a $100 collision deductible option.


Recommendation # 2:

Within 30 days, the Company should provide documentation demonstrating why it
should not be considered in violation of Section 10-4-710, C.R.S. In the event the
Company is unable to provide such documentation, it should be required to provide
evidence to the Division of Insurance that it has reviewed all underwriting selection
guidelines and implemented necessary changes to ensure compliance with Colorado
insurance law.




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Market Conduct Examination                                    Pafco General Insurance Company




Issue C: Failure of the company, in some cases, to obtain signed
         PIP/cost containment options forms.

Colorado Regulation 5-2-6 [amended], Auto No-Fault Cost Containment Options,
promulgated under the authority of sections 10-1-109 and 10-4-706(2), effective
December 1, 2000, states in part:

       4. Insurers intending to offer one or more cost containment options must
       use a form which discloses information about the options and which, when
       completed, contains the insured's signature.


The following chart illustrates the significance of error versus the population and sample
examined:

                      Private Passenger Auto new business policies

           Population        Sample Size         Number of         Percentage to
                                                 Exceptions           Sample
              6726                100                5                 5.0%

An examination of 100 new business files, representing 1.5% of all new business written
by the Company during the examination period, showed five (5) exceptions (or 5.0% of
the sample) wherein the Company failed to obtain completed, signed PIP/Cost
Containment selection forms and to maintain these records obtained from its new
business applicants as required under Colorado insurance law.


Recommendation # 3 :

Within 30 days, the Company should provide documentation demonstrating why it
should not be considered in violation of Colorado Regulation 5-2-6. In the event the
Company is unable to provide such documentation, it should be required to provide
evidence to the Division of Insurance that it has reviewed all procedures relating to the
insurance application processing for obtaining PIP/ cost containment selections and
maintenance of records to ensure compliance with Colorado insurance law.




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Market Conduct Examination                                      Pafco General Insurance Company




Issue D: Use of a prohibited reason to nonrenew insurance policies.

Colorado Amended Regulation 5-2-3 [As amended effective 05/01/2002], Auto Accident
Reparations Act (No-Fault) Rules And Regulations, jointly promulgated by the
Commissioner of Insurance and the Executive Director of the Department of Revenue
under the authority of §§ 42-1-204, 10-4-704, 10-4-718, 10-4-719.7, and 10-1-109,
C.R.S. states, in part:

Section 3.Rules

E. Rules Limiting Insurers’ Action To Refuse To Write, Cancel, Nonrenew, Increase
      Premium, Surcharge Or Reduce Coverages

           5. Unacceptable reasons for refusal to renew a policy of automobile insurance
           include, but are not limited to the following:

               b. The previous producer no longer represents the company.

The following chart illustrates the significance of error versus the population and sample
examined:

                             Private Passenger Auto Nonrenewals

           Population           Sample Size        Number of         Percentage to
                                                   Exceptions           Sample
               111                 111                 73                66.0%

An examination of 111 nonrenewals, representing 100% of all policies nonrenewed by
the Company during the examination period, showed seventy-three (73) exceptions (or
66.0% of the sample) wherein the Company issued a nonrenewal for the reason “agent no
longer represents Company”, a prohibited reason under Colorado insurance law.


Recommendation #4:

Within 30 days, the Company should provide documentation demonstrating why it
should not be considered in violation of Colorado Amended Regulation 5-2-3. In the
event the Company is unable to provide such documentation, it should be required to
provide evidence to the Division of Insurance that it has reviewed all nonrenewal
procedures and implemented necessary changes in order to ensure compliance with
Colorado insurance law.




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Market Conduct Examination                                     Pafco General Insurance Company




Issue E: Failure of the company to provide the right to protest
         disclosure on nonrenewal notice forms.

Section 10-4-720, C.R.S. Cancellation - renewal – reclassification, states, in part:

       (2) An insurer intending to take an action subject to the provisions of this
       section shall, on or before thirty days prior to the proposed effective date
       of the action, send written notice by first-class mail of its intended action
       to the insured at his last known address. The notice shall be in triplicate
       and shall state in clear and specific terms, on a form which has been
       certified by the insurer and the insurer has filed a certification with the
       commissioner that such notice form conforms to Colorado law and any
       rules or regulations promulgated by the commissioner:…

           (f) The right of the insured to protest the proposed action and request a
           hearing thereon before the commissioner by signing two copies of the notice
           and sending them to the commissioner within ten days after receipt of the
           notice;

The Company was using a nonrenewal form during the period of July 1, 2000 to
October 20, 2000, which did not contain the statutory disclosure provision for
applicant’s “right to protest” action. During the period under examination, the
Company used two separate computer networking systems. The first system,
known as the “mainframe” did not incorporate the right to protest provision. The
Company has supplied evidence that the second system currently in use is
generating nonrenewal forms containing all the statutory disclosures required by
the Colorado insurance law.


Recommendation #5 :

Within 30 days, the Company should provide documentation demonstrating why it
should not be considered in violation of Section 10-4-720, C.R.S. In the event the
Company is unable to provide such documentation, it should be required to provide
evidence to the Division of Insurance that it has reviewed all procedures relating to the
right to protest provisions and implemented necessary changes in order to ensure
compliance with Colorado insurance law.




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Market Conduct Examination                                     Pafco General Insurance Company




Issue F: Failure to provide notification of an increase in premium.

Section 10-4-720, C.R.S., Cancellation-Renewal - reclassification, states, in part:

       (2) An insurer intending to take an action subject to the provisions of this
       section shall, on or before thirty days prior to the proposed effective date
       of the action, send written notice by first-class mail of its intended action
       to the insured at his last known address. The notice shall be in triplicate
       and shall state in clear and specific terms, on a form which has been
       certified by the insurer and the insurer has filed a certification with the
       commissioner that such notice form conforms to Colorado law and any
       rules or regulations promulgated by the commissioner:

           (a) The proposed action to be taken, including, if the action is an
           increase in premium or reduction in coverage, the amount of increase
           and the type of coverage to which it is applicable or the type of
           coverage reduced and the extent of the reduction;

The following chart illustrates the significance of error versus the population and sample
examined:

                      Private Passenger Auto policies surcharged

           Population        Sample Size          Number of         Percentage to
                                                  Exceptions           Sample
               100                100                100                100%

An examination of 100 renewal files, representing 100% of all renewed policies that were
surcharged by the Company during the examination period, showed one-hundred (100)
exceptions (or 100% of the sample) wherein the Company failed to notify policyholders
of an increase in premium.

The Company could not provide the examiners with a notification form required for
surcharging policies at renewal time. The Company’s procedure was to send a renewal
letter with a detachable billing form 30 days prior to the renewal date. This billing
included a premium increase as a result of re-rating the policy based on motor vehicle
convictions and accidents discovered in the re-underwriting renewal process.




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Market Conduct Examination                                    Pafco General Insurance Company




Recommendation #6:

Within 30 days, the Company should provide documentation demonstrating why it
should not be considered in violation of Section 10-4-720, C.R.S. In the event the
Company is unable to provide such documentation, it should be required to provide
evidence to the Division of Insurance that it has reviewed all statutory requirements for
an increase in premium and implemented necessary changes in order to ensure
compliance with Colorado insurance law.




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Market Conduct Examination                                      Pafco General Insurance Company



Issue G: Failure to file an actuarial justification for placing applicants
         without prior insurance into a higher-priced rating tier
         program.

Section 10-4-719.7, (1.5)(a), C.R.S., Refusal to write, changes in, cancellation, or
nonrenewal of policies prohibited, states, in part:

       (IV) No insurer shall refuse to write a policy for a new applicant,
       surcharge the premium of a new applicant, or place a new applicant in a
       higher-priced program or plan solely because the applicant had no prior
       insurance if the applicant was not required to have insurance under section
       10-4-705 or under a similar law in another state.

Colorado Amended Regulation 5-2-3 [As amended effective 5/1/2002], Auto Accident
Reparations Act (No-Fault) Rules And Regulations, jointly promulgated by the
Commissioner of Insurance and the Executive Director of the Department of Revenue
under the authority of §§ 42-1-204, 10-4-704, 10-4-718, 10-4-719.7, and 10-1-109,
C.R.S. states, in part:

Section 3.Rules

   E. Rules Limiting Insurers’ Action To Refuse To Write, Cancel, Nonrenew, Increase
   Premium, Surcharge Or Reduce Coverages

       1. Basis for refusal to write a policy of automobile insurance.

       b. Unless actuarial justification in support of the insurer’s action has been
       filed with the Division of Insurance, insurers shall not refuse to write a
       policy for new applicants, surcharge premiums of new applicants or place
       new applicants in higher priced programs or plans solely based on:

       (1) The fact that the applicant had no prior insurance;

The following chart illustrates the significance of error versus the population and sample
examined:

                             Private Passenger Auto new business

           Population           Sample Size        Number of         Percentage to
                                                   Exceptions           Sample
              6736                  100                22                22.0%




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Market Conduct Examination                                    Pafco General Insurance Company




An examination of 100 new business files, representing 1.5% of all new business written
by the Company during the examination period, showed twenty-two (22) instances (or
22.0% of the sample) wherein the Company placed applicants with no prior insurance
into a higher-priced rating tier.

The Company filed 3 separate rate filings creating different rating periods during the
period under examination. In the first rating period, May 2000 to December 2000, the
indication of “no prior insurance” on the application caused a placement into a higher-
priced rating tier program. Because this was the sole factor affecting tier placement, the
statute required an actuarial justification to be filed with the Division of Insurance. The
required filing was not made.


Recommendation #7:

Within 30 days, the Company should provide documentation demonstrating why it
should not be considered in violation of Section 10-4-719.7, C.R.S. and Colorado
Amended Regulation 5-2-3. In the event the Company is unable to provide such
documentation, it should be required to provide evidence to the Division of Insurance that
it has reviewed all procedures relating to rating of new business and implemented
necessary changes in order to ensure compliance with Colorado insurance law.




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Market Conduct Examination                     Pafco General Insurance Company




                   PERTINENT FACTUAL FINDINGS

                             CLAIM PRACTICES




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Market Conduct Examination                                            Pafco General Insurance Company



Issue H: Failure to pay Total Loss Claims accurately.
Section 10-3-1104, C.R.S., Unfair methods of competition and unfair or deceptive acts or
practices, provides, in part:

         (1) The following is defined as an unfair method of competition and
             unfair or deceptive act or practice in the business of insurance:

             (h) Unfair claim settlement practice: Committing or performing,
             either in willful violation of this part 11 or with such frequency as
             to indicate a tendency to engage in a general business practice,

             (VI) Not attempting in good faith to effectuate prompt, fair, and
             equitable settlements of claims in which liability has become
             reasonably clear;


The following chart illustrates the significance of error versus the population
and sample examined:

                        Private Passenger Auto Total Loss Claims

           Population          Sample Size               Number of         Percentage to
                                                         Exceptions           Sample
               1227                     50                   8                 16%

An examination of 50 systematically selected files, representing 4.1% of all total loss
claims paid by the Company during the examination period, showed eight (8) exceptions
(16.0% of the sample) wherein the company failed to accurately pay total loss claims in
accordance with the Colorado insurance law.

The incidence of error for this issue is further defined by the following table:

   Claim handling category                   overpayment      underpayment         incidence
Lack of substantiated                             n/a              n/a                 2
documentation as to how the
settlement amount was calculated
Transfer fee entitlement                       ($18.50)                                1
Sales tax / fee included which is not         ($258.85)                                3
required where salvage was retained           ($120.70)
                                              ($161.50)
Incorrect calculation sequence:                                  ($70.01)              2
deductible taken prior to adding                                 ($43.00)
sales tax +fee
Totals                                         $559.55           $113.01               8



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Market Conduct Examination                                    Pafco General Insurance Company




Recommendation #8:

Within 30 days, the Company should provide documentation demonstrating why it
should not be considered in violation of Section 10-3-1104, C.R.S. In the event the
Company is unable to provide such documentation, it should be required to provide
evidence to the Division of Insurance that it has reviewed all claim procedures relating to
total loss claims handling and implemented all necessary changes to ensure compliance
with Colorado insurance law.




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Market Conduct Examination                                    Pafco General Insurance Company




Issue I: Delay in payment of PIP benefits.

Section 10-4-708 C.R.S., Prompt payment of direct benefits, provides, in part:

       (1) Payment of benefits under the coverages enumerated in section 10-4-706 (1)
       (b) to (1) (e) or alternatively, as applicable, section 10-4-706 (2) or (3) shall be
       made on a monthly basis. Benefits for any period are overdue if not paid within
       thirty days after the insurer receives reasonable proof of the fact and amount of
       expenses incurred during that period; except that an insurer may accumulate
       claims for periods not exceeding one month, and benefits are not overdue if paid
       within fifteen days after the period of accumulation.

Additionally, Amended Regulation 5-2-8 [Amended and effective September 1, 2000],
Timely Payment of Personal Injury Protection Benefits, jointly promulgated by the
Commissioner of Insurance and the Executive Director of the Department of Revenue
pursuant to §§10-1-109, 10-4-704, 10-4-708 (1.3), and 10-3-1110(1), C.R.S.

   Section 3. Rule

       B. Prompt Payment of PIP Benefits
       Section 10-4-708(1), C.R.S. provides that benefits under the coverages
       enumerated in §10-4-706, C.R.S. are overdue if not paid within 30 days after the
       insurer receives reasonable proof of the fact and amount of the expenses incurred.

The following charts illustrate the significance of error versus the population and sample
examined:

                        Private Passenger Auto PIP Claims Paid

           Population        Sample Size         Number of         Percentage to
                                                 Exceptions           Sample
               426                50                 14                28.0%

An examination of 50 PIP files, representing 12.0% of all PIP files paid by the Company
during the examination period, showed fourteen (14) exceptions (28.0% of the sample)
wherein the Company failed to pay at least one (1) PIP medical bill in each file within the
30 day statutory standard.




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Market Conduct Examination                                     Pafco General Insurance Company




                     Private Passenger Auto PIP Checks/Drafts Paid

           Population          Sample Size        Number of         Percentage to
                                                  Exceptions           Sample
              4267                100                 31                31.0%

An examination of 100 systematically selected drafts/checks, representing 2.3% of all
PIP drafts/checks issued by the Company during the examination period, showed thirty-
one (31) exceptions (31.0% of the sample) wherein the Company failed to pay PIP
benefits within the 30 day statutory standard.

The incidence of error is further presented in the following time study categories:

                  # days delay                      Private Passenger Auto PIP
                                                            Claims Paid
                     over 30                                     7
                     over 60                                     4
                     over 90                                     3

                  # days delay                      Private Passenger Auto PIP
                                                        Checks/Drafts Paid
                     over 30                                    11
                     over 60                                     4
                     over 90                                    16



Recommendation #9:

Within 30 days, the Company should provide documentation demonstrating why it
should not be considered in violation of Section 10-4-708, C.R.S., and Colorado
Amended Regulation 5-2-8. In the event the Company is unable to provide such
documentation, it should be required to provide evidence to the Division of Insurance that
it has reviewed all procedures related to timeliness of payment of PIP benefits and has
implemented all necessary changes to ensure compliance with Colorado insurance law.




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Market Conduct Examination                                Pafco General Insurance Company


                             Summary of Recommendations
                 Pafco General Insurance Company Examination Report

                       ISSUE                          RECOMMENDATION           PAGE
                                                          NUMBER
                UNDERWRITING
  A: Failure of the Company to file an annual                1                   13
  forms certification with the Division of
  Insurance.
  B: Failure of the Company to offer $100                    2                   14
  collision deductible.
  C: Failure of the company to obtain signed                 3                   15
  PIP/cost containment options forms.
  D: Use of a prohibited reason to nonrenewal                4                   16
  insurance policies.
  E: Failure of the Company to provide the right             5                   17
  to protest disclosure on nonrenewal notice
  forms.
  F: Failure to provide notification of an                   6                   19
  increase in premium.
  G: Failure to file an actuarial justification for          7                   21
  placing applicants without prior insurance into
  a higher-priced rating tier program.
                      CLAIMS
  H: Failure to pay total loss claims accurately             8                   24
  I: Delay in payment of PIP benefits.                       9                   26




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Market Conduct Examination                                             Pafco General Insurance Company




                               Independent Market Conduct Examiners
                                         James T. Axman, CIE
                                       Kathleen M. Bergan, AIE
                 Participated in this examination and in the preparation of this report




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