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					                                                  STATE OF OREGON



                  DEPARTMENT OF CONSUMER AND BUSINESS SERVICES



                                                INSURANCE DIVISION



                          REPORT OF MARKET CONDUCT EXAMINATION



                                                                 OF



                                MID-CENTURY INSURANCE COMPANY
                                    LOS ANGELES, CALIFORNIA


                                         NAIC COMPANY CODE 21687



                                                              AS OF



                                                       JUNE 30, 1998




                                               TABLE OF CONTENTS


SCOPE OF EXAMINATION ............................................................................................4
DESCRIPTION OF COMPANY ......................................................................................5
   Management and Control ...............................................................................................5
    Board of Directors .........................................................................................................5
   Officers ............................................................................................................................6
COMPLAINT HANDLING PRACTICES .......................................................................6
    Findings ..........................................................................................................................8

UNDERWRITING AND RATING .................................................................................12
    Findings ........................................................................................................................13
     Additional Findings and Procedures..........................................................................23

CLAIMS ............................................................................................................................25
    Findings ........................................................................................................................26
     Additional Findings....................................................................................................41
       Paid Claims ..............................................................................................................41
       Denied Claims ..........................................................................................................42
       Total Loss .................................................................................................................42

COMPLIANCE WITH PRIOR EXAMINATION RECOMMENDATIONS...............44
CONCLUSION.................................................................................................................44
MANAGEMENT AFFIRMATION .................................................................................46
ACKNOWLEDGMENT ...................................................................................................47
AFFIDAVIT......................................................................................................................48
APPENDIX A ...................................................................................................................49
    Complaints ....................................................................................................................49
    Underwriting and Rating .............................................................................................49
    Claims ...........................................................................................................................50
November 3, 1999




Honorable Michael Greenfield, Director
Department of Consumer and Business Services
State of Oregon
350 Winter Street NE, Room 440-4
Salem, Oregon 97310


Dear Director:

In accordance with your instructions and pursuant to ORS 731.300, we have examined

the business affairs of


                          Mid-Century Insurance Company
                              4680 Wilshire Boulevard
                           Los Angeles, California 90010

                             NAIC Company Code 21687


hereinafter referred to as the “Company.”       The examination was conducted at the

Oregon office located at 13333 SW 68th Parkway, Tigard, Oregon. The following report

of examination is respectfully submitted.




                                            3
                              SCOPE OF EXAMINATION

The market conduct examination of the Company was conducted as of June 30, 1998,

covering the period of July 1, 1997 through June 30, 1998, and included a review of

material transactions or events which occurred subsequent to the examination cut-off

date and were noted during the examination.


A standard focus examination was performed.        The examination did target specific

products. This examination of the Company was conducted pursuant to ORS 731.300

and in accordance with procedures and guidelines that are established by the Oregon

Insurance Division Market Conduct Program.          The program generally follows the

Market Conduct Examination Handbook as adopted by the National Association of

Insurance Commissioners to the extent that it is consistent with Oregon law.        The

purpose was to determine the Company's ability to fulfill and manner of fulfillment of

its obligations, the nature of its operations, whether it has given proper treatment to

policyholders, and its compliance with the Oregon Insurance Code and Administrative

Rules.


In order to determine the practices and procedures of the Company's operations, one or

more of the following procedures was performed in each phase:

         1. A sample of files was selected from listings provided by the Company. The
         examiner then reviewed each file.

         2. The procedure manuals and/or memorandum were evaluated.

         3. The Company responded to a series of questions regarding the phase being
         examined.

The examination was comprised of the following three phases:

         Complaint Handling Practices
         Underwriting
         Claims Handling Practices




                                            4
                               DESCRIPTION OF COMPANY

The Company is a stock corporation organized in the State of California on December 3,

1949. The charter documents indicate the primary business of the corporation is the

transaction of a general insurance business. The Company is owned by three California

reciprocal or interinsurance exchanges: 80% of the common stock is held by Farmers

Insurance Exchange, 10% of the common stock is held by Fire Insurance Exchange and

10% of the common stock is held by Truck Insurance Exchange. When formed, the

Company had nine directors on its governing board, a number that remained constant

until 1997. The Articles of Incorporation were amended in 1997 to provide that the

number of directors shall be not less than five nor more than seven. The Company

currently has six directors.


Management and Control

Board of Directors

The members of the Board of Directors as of June 30, 1998, were:

Name and Address          Principal Affiliation                Director Since

Gerald Faulwell           Vice President                       March 18, 1988
Los Angeles, CA           Farmers Group, Inc.
                          Assistant Secretary
                          Mid-Century Insurance Company

Martin D. Feinstein       President and CEO                    March 18, 1994
Los Angeles, CA           Farmers Group, Inc.
                          Vice President
                          Mid-Century Insurance Company

James A. MacKinnon        Executive Vice President             March 15, 1996
Los Angeles, CA           Farmers Group, Inc.
                          Vice President
                          Mid-Century Insurance Company

Leonard H. Gelfand        Senior Vice President                March 15, 1991
Los Angeles, CA           Farmers Group, Inc.
                          Vice President
                          Mid-Century Insurance Company

Name and Address          Principal Affiliation                Director Since
                                           5
Jason L. Katz             Executive Vice President             March 21, 1986
Los Angeles, CA           Farmers Group, Inc.
                          Vice President
                          Mid-Century Insurance Company

John H. Lynch             Senior Vice President                March 17, 1995
Los Angeles, CA           Farmers Group, Inc.
                          President
                          Mid-Century Insurance Company


Officers

Operating management of the Company as of June 30, 1998, was under the direction of

the following principal officers:


Name                            Offices

John H. Lynch                   President
James K. Caudill                Vice President and Treasurer
Robert B. Downer                Vice President
Martin D. Feinstein             Vice President
Clinton L. Gardner              Vice President
Leonard H. Gelfand              Vice President
Julian Harvey                   Vice President
Paul N. Hopkins                 Vice President
Jason L. Katz                   Vice President
James A. MacKinnon              Vice President
Edward A. Morris                Vice President
Ronald G. Myhan                 Vice President
Keitha T. Schofield             Vice President
Paul G. Secord                  Vice President
Stanley R. Smith                Vice President
Rubin Snowden                   Vice President
Alan F. Porter                  Secretary
Howard E. Falk Jr.              Assistant Vice President
Laszlo G. Heredy                Assistant Vice President
Gerald E. Faulwell              Assistant Secretary
Maryann Seltzer                 Assistant Secretary
Hubert L. Mountz                Assistant Treasurer




                        COMPLAINT HANDLING PRACTICES

                                            6
The following information is taken from the Company’s written procedures. The

Company’s definition of a consumer complaint is:

      Any communication expressing a grievance from policyholders, claimants and
      the Insurance Department.


The following guidelines are used to determine whether a communication is a legitimate

consumer complaint.

      1. All complaints of any kind from the Insurance Department must be included.

      2. First time communications concerning:

         a.   Improper conduct by an employee or agent;
         b.   Questionable claims handling;
         c.   Unreasonable delays;
         d.   Unfair or discriminatory policy decline or cancellation.

      3. Second time communications about a:

         a. Mistake or error;
         b. Repair;
         c. Request for information if we ignored or failed to properly handle the first
            request.

   Note: First time communications on a mistake or error will not be considered a
   complaint. Complaint occurs only in failure to handle promptly.

      4. Agency complaints about commissions, underwriting rules, company policy

          and overall policy service are not to be considered consumer complaints. If,

          however, an agency complaint on behalf of an insured falls within the

          definition of a consumer complaint, it should be recorded.


      5. Whenever there is a question as to whether communication is a consumer

          complaint, apply this test: Have we followed good business practices? These

          practices involve issuing our policies and settling claims in a fast, fair and

          friendly manner, plus handling and correcting mistakes promptly.”




                                             7
Complaints from the Insurance Division are forwarded to the state executive director.

A quality control tracking form is assigned to the case and the complaint is referred to

the appropriate department head for research and response.        The department head

sends the Company’s response to the Insurance Division. Copies of the response along

with the completed quality control tracking form are forwarded to the state executive

director and the case is recorded in the complaint register.


Complaints not involving the Insurance Division are assigned a quality control tracking

form and routed directly to the supervisor or manager whose area will handle the

complaint. That supervisor or manager is responsible for ensuring the complaint does

not become lost, forgotten or unreasonably delayed.       Upon completion, the original

quality control tracking form is matched to the copy retained by the supervisor or

manager. The original form and supporting documents regarding the complaint are

filed in the department’s complaint folder. Each department maintains its own internal

complaint register and corresponding complaint files.


Findings

The standards used may be found in Appendix A immediately following the report. The

Company passed the following standards without comment:

Standard                                    Regulatory Authority
Complaint Handling Standard #3 – The        ORS 731.296 and OAR 836-080-0225(2)
Company furnished a response within 21
days of an inquiry from the Insurance
Commissioner.
Complaint Handling Standard #4 – The        OAR 836-080-0225(2)
Company responds to Insurance
Commissioner complaints adequately
and conclusively.


The following exceptions to the standards were noted:




                                             8
Complaint Handling Standard #1 – All complaints are recorded on the Company

complaint register. Reference ORS 731.302(1), ORS 746.240


Findings:   Passed with comment.        All of the complaints recorded by the Oregon

Insurance Division during this examination period also appeared on the Company’s

complaint log. However, the Company recorded one Insurance Division complaint as a

Mid-Century Insurance Company complaint when it actually was against Farmers

Insurance Company of Oregon.


Complaint Handling Standard #2 – The Company has adequate complaint handling

procedures in place and communicates such procedures to policyholders. Reference ORS

731.302(1), ORS 746.240


Findings: Passed with comment. The Company generally directs its policyholders to

contact its local agents for assistance in addressing problems or questions regarding

their insurance policy or service issues.


The Company’s complaint register for Insurance Division complaints received during

the examination period was used to develop the population reviewed for Standards 3

and 4. From a total population of 55 complaints received from the Oregon Insurance

Division during the examination period, a random sample of 50 (91%) items was

selected for review. Summaries of the reasons for the inquiries and their dispositions

are shown below:




Reason                                                 Number    % To Total
                                            9
Underwriting-Cancellation                                3             6%
Claims-Delay in claim handling                           5            10
Claims-Denial of claim                                  18            36
Claims-Dissatisfaction with benefits paid               16            32
Claims-Dissatisfaction with claim investigation          3             6
Claims-Dissatisfaction with quality of car repair        1             2
Policyholder-Premium rate increase                       3             6
Policyholder-Problem with billing                        1             2
Total                                                   50           100%

Disposition                               Number           % To Total

Corrective action taken                       12               24%
Satisfactory explanation given                18               36
No action taken-position upheld               20               40
Total                                         50              100%


The Company’s complaint register for noninsurance division inquiries received during

the examination period was used to develop the population evaluated for Standards 5

and 6. All 32 noninsurance division complaints received by the Company during the

examination period were reviewed. Summaries of the reasons for the inquiries and

their dispositions are shown below:

Reason                                              Number       % To Total

Underwriting-Cancellation                              1            3.125%
Claims-Delay in claim handling                         2            6.250
Claims-Denial of claim                                 1            3.125
Claims-Dissatisfaction with benefits paid              5           15.625
Claims-Dissatisfaction with claim investigation        1            3.125
Policyholder-General dissatisfaction with agent        1            3.125
Policyholder-Home office processing delay             17           53.125
Policyholder-Poor service                              2            6.250
Policyholder-Problem with billing                      1            3.125
Policyholder-Rudeness toward consumer                  1            3.125
Total                                                 32          100.000%

Disposition                           Number        % To Total

Corrective action taken                  26             81%
Satisfactory explanation given            6             19
Total                                    32            100%




                                           10
Complaint Handling Standard #5 – The Company furnished a response within 30 days

of an inquiry from an insured. Reference: OAR 836-080-0225(3).


Findings: Passed with comment. 93% compliance to applicable files. One file (7%)

failed this standard because the Company was unable to provide documentation

regarding its response to the complainant. This standard did not apply to 17 of the files

reviewed because the complaints were not made by insureds. These complaints were

made by agents.


Although the failure rate exceeds the established tolerable error ratio, due to the

reduced size of the applicable population, a recommendation does not appear to be

warranted.


Complaint Handling Standard #6 – The Company response to an inquiry from an

insured is adequate and answers the questions being raised. Reference: OAR 836-080-

0225(3).


Findings: Passed with comment. 80% compliance to applicable files. Three files (20%)

failed this standard.


This standard did not apply to 17 of the files reviewed because the complaints were not

made by insureds. Agents submitted these complaints.


The Company was unable to provide documentation regarding its responses to two of

the complainants. The other case failed this standard because the Company responded

to the insured’s complaint by sending an additional refund along with a revised

cancellation notice, but did not otherwise provide a written response to the insured.

The amount of the refund was less than the amount requested by the insured and the

Company did not provide an adequate explanation of the difference.

                                           11
Although the failure rate exceeds the established tolerable error ratio, due to the

reduced size of the applicable population a recommendation does not appear to be

warranted.

                           UNDERWRITING AND RATING

The Company uses a captive agent system to market its products.          Quotations are

prepared by the agency force in their field offices. Coverage is not considered bound

until money is collected. Agents may submit nonbound applications to underwriting for

consideration.


After selling a risk and binding coverage, agents enter the applicant’s information into

the Company’s APPS (Auto Policy Processing System) System.           The information is

subject to two separate program runs. The first program is “policy validation” which

reviews the policy for coverage, discounts, rates, and product group validity.   Agents

are notified if errors are found and are asked to make any corrections or provide missing

information.


The second system is the Underwriting Expert System. This system reviews the policy

for eligibility by analyzing selected underwriting factors and guidelines. If the expert

system can accept the policy, it is automatically issued without manual underwriting

intervention.    Declarations pages are mailed directly to the insured.     Neither the

Company nor the agent retain copies of the declarations page. The system will also

decline automatically if the factors warrant a declination.    Manual underwriting is

performed when the expert system cannot render a decision.




MVRs and loss history report are ordered on all applications. Any losses reported on a

loss history report will automatically refer the policy to manual underwriting. If the

                                           12
loss history report is clear, the system defers to the assist credit report to determine if

MVRs are warranted.


Prior to the renewal date of the policy, the APPS system will rerun the policy validation

and underwriting expert system. APPS will order new MVRs if certain conditions, such

as loss activity, are met. If all coverage and underwriting guidelines are met, the policy

is renewed.   Any new activity found on the MVR, ineligible coverage, or ineligible

underwriting guidelines will cause the policy to be referred to underwriting for review.


The process of selling and renewing the policy is interfaced between this Company and

its affiliate, Farmers Insurance Company of Oregon (Farmers).           When a prospect

requests a quote, they may be placed in this Company or any of the Farmers tiers

depending on the underwriting criteria. The same household may be issued a mix of

policies with some vehicles issued under this Company and one or more vehicles issued

in the different Farmers tiers.     Agents are allowed to make subjective decisions

regarding the placing of risks in a tier or Company. Those decisions are subject to

underwriting review if the prospect does not meet the minimum qualification of the tier

or Company.


At renewal, an insured may be moved to a better rated tier or Company. This is usually

at the request of an agent or the insured themselves.


Findings

The underwriting review consists of eighteen standards. A list of all standards appears

in Appendix A immediately following this report. Standards number 6 and 16 were

waived, as they did not pertain to personal lines automobile insurance which was the

target of this examination. The Company provided population runs of business issued,




                                            13
nonrenewed, and canceled from which random samples were drawn. The chart below

illustrates the size of the original population as well as the size of the sample drawn.


Population                   Total          Initial Random
Reviewed                   Population           Sample            % To Total

New business issued           19,637               100                0.51%
Policies nonrenewed              164                50               30.49%
Policies canceled              2,575                50                1.94%


The standards used may be found in Appendix A immediately following the report. The

Company passed the following standards without comment:


Standard                                     Regulatory Authority
Underwriting Standard #2 – Disclosures       ORS 737.205 and ORS 742.566
to insureds concerning rates and
coverage are accurate and timely.
Underwriting Standard #7 – The               ORS 746.015, ORS 746.018 and OAR
company underwriting practices are not       836-081-0030
unfairly discriminatory. The company
adheres to applicable statutes, rules and
regulations and company guidelines in
the selection of risk.
Underwriting Standard #11 –                  ORS 746.240
Underwriting, rating and classifications
are based on adequate information
developed at or near the inception of the
coverage rather than near expiration, or
following a claim.
Underwriting Standard #13 – The              ORS 746.240
Company does not engage in collusive or
anti-competitive underwriting practices.


Standard 16 was waived. It applies solely to property policies which were not reviewed

during this examination.


The following exceptions to the standards were noted:



Underwriting Standard #1 – The rates charged for the policy coverage are in accordance

with filed rates (if applicable) or the company rating plan. Reference: ORS 737.205.

                                            14
Findings: Passed with comment. Initial attempts to rate policies were unsuccessful due

to the lack of documentation (see Additional Findings and Procedures at the end of this

section). Eventually, 16 files were rated by hand but the examiner was unable to match

any rates. With the help of the Company, 15 of the 16 files were rated and matched to

the charged rate. Rating factors were reviewed on all files and no discrepancies were

noted.


Underwriting Standard #3 - An insured or applicant may not be assigned to a higher

risk category than the person would normally be assigned because the person allowed a

motor vehicle liability policy to lapse or had driving privileges suspended due to a non-

driving offense. Reference: ORS 742.449.


Findings: Failed. 90% compliance. Ten policies failed because the insurer appeared to

place the applicant in the higher rated Company solely because the applicant did not

have continuous prior liability insurance. However, the Company could not document if

the applicant had been in violation of the financial responsibility laws.


On August 2, 1999, the Company reprogrammed its system to refer all applicants that

have less than 12 months of prior liability insurance to underwriting for review and

proper placement.


Additionally, ORS 742.449 prohibits an adverse action or additional premium if a

license is suspended for specific nondriving offenses.         The Company’s computer

underwriting edits do not address the possibility of a suspension for other than a driving

offense. However, the Company has reversed its APPs system to refer all suspended

driver’s licenses to the underwriting department for review.


Due to the Company’s corrections, a recommendation is waived.

                                            15
Underwriting Standard #4 – Written rejection for higher limits of uninsured and

underinsured motorist coverage limits must be obtained. Reference: ORS 742.502(2)(a)

and OAR 836-054-0000.


Findings: Failed. 44% compliance. Nine files (56%) failed this standard.


The Company provided the examiners with an electronic file of 19,637 policies issued

during the examination period. A list of 22 (0.11%) policies with mismatched BI and

UIM BI limits was generated from that electronic file using ACL (Audit Command

Language) software.


The examiner asked the Company to furnish copies of the waivers signed by the

policyholders at the time the coverage was written. The Company identified one case

that was not written in Oregon. The standard did not apply to five of the files because

the coverage was out of force at the time the records were transferred to Oregon. These

cases appeared on the original listing because they were attached to household records

that came to Oregon with other coverage in force.      This reduced the population of

applicable files to 16.


Number of Failures        Reason

           4              Company was unable to provide copies of signed waivers
           2              Waivers signed by policyholders do not meet the
                          requirements of OAR 836-054-0000(2)
           3              Signed waivers are incomplete
           9              Total

I recommend the Company maintain documentation of written rejection for

higher limits of uninsured and underinsured motorist coverage in accordance

with the provisions of ORS 742.502(2)(a) and OAR 836-054-0000(2).




                                           16
The Company has instructed all agents to destroy the outdated forms and use only the

corrected forms.   The Company has also established an internal audit procedure to

ensure compliance.


Underwriting Standard #5 – Named exclusions are signed by all named insureds and

comply with all rules and regulations. Reference: ORS 742.450(5).


Findings:     Passed with comment.    The issued files reviewed did not contain any

examples of files in which a named exclusion was used. The procedures appear to be in

place to obtain the appropriate signatures.


Underwriting Standard #6 - Individual Risk Package Modifiers (IRPM) are used in

accordance with the instructions from the Oregon Insurance Division.        Reference:

Bulletin 82-4.


Findings: Waived. Not applicable to this population.


Underwriting Standard #8 – Employment driving record may not be used to determine

if the file is issued or renewed or in the calculation of rates. Reference: ORS 746.260

and ORS 746.265(1).


Findings: Passed with comment. The Company produced documents from its vendor

showing the Company is following state statute relating to the use of employment

driving records.



Underwriting Standard #9 – For the purpose of determining whether or not to issue or

renew a policy and the calculation of rates, an insurer may not use a driving record

older than three years immediately preceding the issuance or renewal. Reference: ORS

746.265(2).

                                              17
Findings: Failed. 99% compliance. The electronic underwriting system interfaces with

the MVRs and loss history reports and the driving record appears on the APPS “UW”

screen.


At renewal the computer generates a renewal offer based on the driving record as it

stands on the day the renewal offer is printed (approximately 45 days in advance of the

renewal date).


The insured is charged for any ticket or accident that would become three years old in

the last 45 days of the policy. The charge remains on the policy for the next six month

policy period.


Although only one error was observed, the Company’s computer system would generate

this error each time there was a ticket or accident that would be three years old in the

last 45 days of the policy period.


I recommend the Company not use a driving record older than three years

immediately      preceding     the   issuance   or   renewal   for   the   purpose   of

determining whether or not to issue or renew a policy and the calculation of

rates in compliance with ORS 746.265(2).


The Company has asked programming to fix the error as soon as possible.




Underwriting Standard #10 – All forms and endorsements forming a part of the

contract are listed on the declarations page and should be filed with the department of

insurance. Reference: ORS 742.003.




                                           18
Findings: Failed. 0% compliance. All files were deemed to have failed this standard

due to lack of documentation. The Company maintains its records on two systems: the

APPS system and the Network system. Neither the APPS system nor the Network

system contains the form numbers that were issued with original policy. The Company

and its agents do not maintain copies of the declaration pages, so the form numbers

could not be determined from paper copies.


I recommend the Company’s records accurately document all forms used with

policies at the time of issuance in order to determine if the forms were filed

and approved at the time of use in compliance with ORS 742.003.


The Company is implementing new technology in mid-2000 which it believes will

address this issue.


Underwriting Standard #12 – File documentation adequately supports decisions made.

Reference: ORS 733.170.


Findings: Failed. 0% compliance. The Company’s current system does not support the

documentation of underwriting decisions. The Company explained that many decisions

are made verbally over the phone with the agent and are, therefore, not supported. The

Company did, at one time, use the remarks section of the system for documentation.

This would produce a referral to underwriting, so the practice was discontinued. Many

of the decisions to cancel/rewrite policyholders from one policy to another were not

documented and we were unable to determine why insureds were moved from one

company or plan to the next.




                                             19
I recommend the Company’s documentation adequately support all decisions

made by the underwriters and underwriting decisions made by agents in

accordance with ORS 733.170.


Agents and underwriters are receiving additional instructions in documenting files.


Underwriting    Standard     #14    –   Rejections   and   declinations   are   not   unfairly

discriminatory. Reference: ORS 746.015, ORS 746.018 and OAR 836-081-0030.


Findings: Failed. 80% compliance. Five files (20%) failed this standard.


Twenty-five of the 50 cases reviewed were cancellations requested by the policyholders.

These files were eliminated from the initial random sample to produce an applicable

sample size of 25.


The reasons for noncompliance are shown in the chart below:

Number of Failures         Reason

           1               Company unable to locate documentation
           4               Company canceled coverage due to suspended license but
                           did not attempt to learn the reason for suspension prior to
                           cancellation
           5               Total


The Company indicated it is amending how it addresses suspended licenses to confirm

they are the result of a driving-related offense.


I   recommend        the   Company        maintain     documentation        regarding      its

underwriting decisions to sufficiently demonstrate its underwriting practices

are not unfairly discriminatory in accordance with ORS 746.015, ORS 746.018

and OAR 836-081-0030.




                                              20
A recommendation regarding adverse underwriting action relating to suspended

licenses appears under Standard #3 above.


The Company has reminded underwriters to document all decisions.


Underwriting Standard #15 – Cancellation/nonrenewal notices comply with policy

provisions and state laws and company guidelines. Cancellation must be made within

the first 60 days of the policy except for the exemptions provided by law. Nonrenewal

and changes in the policy must be sent at least 30 days in advance of the renewal date.

Reference: ORS 742.566 through ORS 742.572 and ORS 746.650.


Findings: Failed. 41% compliance. 44 files (59%) failed this standard.


Two populations were reviewed for compliance with this standard: canceled policies and

nonrenewed policies.


Twenty-five of the canceled policies selected were eliminated from the sample because

the policyholders requested these cancellations.      This reduced the total sample

population size to 75.


The Company was unable to locate one of the cancellation notices and this case failed

the standard due to deficient recordkeeping.


The results of the examiner’s review follow:




                                           Number           Number
Population               Number of         Passed            Failed
Reviewed                   Files          Standard         Standard

Canceled policies            25                  3             22
                                            21
Nonrenewed policies           50                    28           22
Total                         75                    31           44


                                                    Canceled   Nonrenewed
Reason                                              Policies     Policies   Total

Cancellation notice did not contain specific             19       N/A        19
reason for cancellation

Company unable to provide copy of                         1       N/A         1
cancellation notice

Cancellation notice was not mailed 30 days                2       N/A         2
prior to the date coverage ended

Nonrenewal notice did not contain specific               N/A       22        22
reason for adverse underwriting action

Total                                                    22        22        44


The Company indicated it has discussed the issue of providing the insured with the

specific reason for nonrenewal with its underwriters. The Company plans to regularly

examine a representative sampling of these notices to verify the explanations more

clearly provide the reason(s) for the Company’s action.


I recommend the Company provide the applicant or policyholder with the

specific reason for an adverse underwriting decision in accordance with the

provisions of ORS 746.650.


The Company is implementing procedures to supply a specific reason in the event of an

adverse underwriting decision.




I recommend the Company provide the insured at least 30 days advance

notice of cancellation and include the specific reason for nonrenewal in

accordance with the provisions of ORS 742.564.

                                               22
The Company is providing additional training to underwriters to address this issue.


Underwriting Standard #17 – The insurer reports the name, address and vin number of

each vehicle covered by a motor vehicle liability policy whether the policy was bought,

canceled or not renewed within 30 days of cancellation or nonrenewal and within 15

days of issuance to the Department of Transportation. Reference: ORS 742.580.


Findings: Passed with comment. The Company transmits the required information to

the Department of Transportation electronically and has not developed a system

program to print the reports. The transmissions are sent each Friday.


From the information provided, it appears the procedures the Company has established

are in compliance with this standard.


Underwriting    Standard     #18    –   Rescissions   are   not   made   for   nonmaterial

misrepresentations in accordance with the Company’s established procedures.

Reference: ORS 746.240.


Findings:   Passed with comment.         The Company indicated it did not have any

rescissions during the examination. Any rescission would be reviewed by underwriting.

The Company’s procedures indicate that only material misrepresentations would be

used if considering a rescission.




Additional Findings and Procedures

Neither the Company nor its agents maintain declarations page showing the rates

charged at the time of issuance and the form numbers that make up the policy.


                                             23
Initially, the examiners could not obtain adequate rating information from the

computer screens available. The Company offered to provide reports called the “Reports

of Final Issued Policy.” The examiners were informed these reports would have all the

information necessary to rate the policies. The reports were ordered from programmers

in the corporate offices. When the reports arrived, the examiners could not match any

rates with the information provided. There were two premiums shown on each report

and the Company provided different information three separate times regarding which

was the correct premium that printed on the declarations pages. The Company also

wavered on the issue of whether or not the membership fee was included in the final

premium.


When we could not match any premiums, the examiners left the files with the Company

and asked them to demonstrate how they were rated. The Corporate office could not

provide anyone who could manually rate policy files.      With the help of a customer

service representative in the Portland, Oregon offices, we were able to rate 15 of the 16

policies. One policy could not be reconciled.


The customer service representative could not rate all the files from the reports we

received. In two cases, the coverages were not shown on the reports and had to be

recreated from either microfiche or computer screens. In two additional cases, some of

the discounts were missing from the reports and had to be researched through other

sources.




Although we were eventually able to determine that in most cases the filed rates are

being used, the method of documenting policy rate information does not meet the

standard of “readily verifiable.”


                                                24
I recommend the Company maintain its policy rating documentation and rate

pages in such a manner that the rates for each policy can be easily and readily

verified as filed rates in accordance with ORS 733.170.


Farmers reexamined their procedures for determining and obtaining policy rate

information.     As a result, to improve efficiency for such policy rate information,

individuals were retrained on procedures and how to obtain pertinent information.


                                         CLAIMS

Claims are reported to either the agent, the claims office or the after hours call center.

Each of these three locations has the responsibility of inputting the claim report into the

Company’s computerized claim system.


If the claim has been reported to the agent or the after hours call center, a loss report is

generated from the computer system and sent to the appropriate claims office. The

office verifies coverage and assigns the claim to a claims representative (CR) for

investigation.


The CR makes contact directly with the claimant, obtains the necessary documents and

inspects the vehicle, if required. Reserves are set if it is an injury claim. The CR opens

subrogation if it is applicable. Individual reserve amounts are revised from time to time

to reflect the current value of the claim. Any initial reserve or reserve change over the

branch claim manager’s (BCM) authority must be accompanied by a regional office file

including an adjusters investigation report and summary.


The CR is not required to set reserves for material damage or property damage claims.

An actuary calculates reserves for these losses.


Once the investigation is complete, the CR pays the claim and the reserve is closed.

                                            25
All denial letters are signed by the BCM. Coverage may not be denied on any bodily

injury, uninsured motorist, medical payment or other injury claim without prior

approval of the regional claims manager/commercial zone director. Denial of a defense

requires home office approval.


Claims involving unusual or complicated situations or large exposure may be submitted

to   the    regional   claims   manager/commercial    zone   director   with   the   BCM’s

recommendation. These cases may also be referred to the home office claims staff for a

decision.


The Company maintains a claims manual outlining in detail its claim procedures.


Findings

The Company provided lists of claims paid and total loss claims paid during the

examination period. From these lists, random samples were selected for review.


The Company was unable to produce a list of denied claims that excluded those which

were simply closed without payment. An alternative method was used to select the

denied claims for review. The examiner went to the Company’s off-site records storage

facility with two Company employees to pull the initial sample of denied claims from the

shelves. The reasons for the denied claims were as follows:


Reason For Denial                           Number           % To Total

Shared liability                                  1               2%
Coverage not in force                             6              12
No permission to use vehicle                      1               2
Vehicle not insured                               4               8
No coverage for loss                              1               2
Proof of loss not received                        1               2
Mid-Century insured not at fault                 33              66
Vehicle not involved in accident                  2               4
No injury as result of accident                   1               2
Total                                            50             100%
                                            26
The resulting populations and samples drawn are shown below.


                             Total           Initial Random
Type of Claim              Population            Sample          % To Total

Claims paid                  8,561                 100             1.17%
Total loss claims paid         787                  50             6.35%
Denied claims               Unknown                 50            Unknown


The total loss claims were reviewed for compliance with standards 5 and 17 only.


The standards used may be found in Appendix A immediately following the report. The

Company passed the following standards without comment:


Standard                                    Regulatory Authority
Claims Standard #6- Claims are not          ORS 746.230(1)(c) & (d)
denied without first conducting a
reasonable investigation.
Claims Standard #8 – The Company did        ORS 746.230(1)(a)
not misrepresent the facts or policy
provisions while settling a claim.
Claims Standard #10 – The Company           ORS 746.230(1)(i)
did not attempt to settle a claim on the
basis of an altered application without
notice to or consent of the applicant.
Claims Standard #11 – The Company           ORS 746.230(1)(k)
did not delay investigation or payment of
claims by requiring a claimant to submit
a preliminary claims report and then
requiring subsequent submission of loss
forms when both require essentially the
same information.

Claims Standard #13 – Claim files are       ORS 746.240
reserved in accordance with the
Company’s established procedures.
Claims Standard #14 – Denied and            ORS 746.230(1)(m) and OAR 836-080-
closed-without-payment claims are           0235(1)
handled in accordance with policy
provisions and state law.




                                            27
Claims Standard 16 refers to the Company’s processing of personal injury claims.   This

standard was waived. The sample of claims did not contain enough personal injury

claims to determine if the Company’s practices were in compliance and a separate

sample was not drawn.


The following exceptions to the standards were noted:


Claims Standard #1 – The initial contact by the Company with the claimant is within

30 days. Reference: OAR 836-080-0225.

Days to Acknowledge              Number          % To Total

0 – 30                              144               96.0%
31-45                                 1                 .7
Over 45                               4                2.6
Unknown                               1                 .7
Total                               150              100.0%


Findings: Passed with comment. 96% compliance. Six paid claim files (4%) failed this

standard.


Four files did not contain documentation to indicate when the claimant was initially

contacted.


The Company received a request for payment of diminished value from an attorney

representing an insured. The Company’s initial response to this correspondence was via

phone with the attorney’s assistant 78 days later.


The Company acknowledged one claim by faxing a telephone report assignment sheet

(T.R.A.S.) to the repair shop. The file does not document any direct contact with the

claimant.


Population                                Number Passed       Number Failed
Reviewed             Number Units           Standard            Standard

                                            28
Claims paid                100                    94                  6
Claims denied               50                    50                  0
Total                      150                   144                  6


A failure rate of 4% does not represent a pattern. Therefore, no recommendation is

warranted.


Claims Standard #2 - Investigations are conducted within 45 days. Reference: OAR

836-080-0230.


Findings:    Passed with comment.     98% compliance.     Three files (2%) failed this

standard.


The investigation of one paid claim took 111 days.


Another paid claim was assigned to a CR October 27, 1997, and the file documentation

does not show any action taken on the case until December 12, 1997, 46 days later.


A denied claim was received November 3, 1997, and the investigation was not

completed until January 9, 1998, 67 days later.


Population                            Number Passed       Number Failed
Reviewed           Number Units         Standard            Standard

Claims paid              100                     98               2
Claims denied             50                     49               1
Total                    150                    147               3


A failure rate of 2% does not represent a pattern. Therefore, no recommendation is

warranted.


Claims Standard #3 – Claims are resolved in 30 days unless a delay letter (45 days) has

been sent. Reference: OAR 836-080-0235(1) and (3).




                                           29
Findings:   Failed.   86% compliance to applicable files.       Six files (14%) failed this

standard.


The Company acknowledged a CR delayed the processing of one paid claim.                The

insured was not informed of the reason for the delay.


Proof of loss was received for a paid claim July 14, 1997, and the investigation was

completed October 13 1997, 111 days later.       The file does not contain evidence of

correspondence with the insured to explain the reason for the claim delay.


Another claim file contained bills received December 15, 1997, and paid February 3,

1998, 50 days later, and bills received August 12, 1998, and paid September 25, 1998,

44 days later. No letters were mailed to the insured to explain the reasons for these

delays.


Proof of loss was received for a paid claim November 25, 1997. The Company wrote for

medical records to investigate this claim January 26, 1998, 62 days later. The insured

was not informed of the reason for the delay in processing the claim.


Two denied claims failed this standard. One took 71 days to process and the other 34

days to complete. These claim files did not indicate letters were mailed to the insureds

to explain the reason for the delay.



                                   Number Not           Number          Number
Population            Number       Applicable            Passed          Failed
Reviewed               Units         (N/A)              Standard        Standard

Claims paid             100              67                29               4
Claims denied            50              41                 7               2
Subtotal                150             108                36               6
Less N/A files          108
Total                    42             108                36               6


                                           30
Note: This standard applies to first party claims only. The N/A files represent third

party claims.


I recommend the Company resolve claims in 30 days unless a delay letter (45

days) has been sent in accordance with OAR 836-080-0235(1) and (4).


The Company indicated it has instructed its claims personnel to send delay letters when

appropriate.


Claims Standard #4 – The Company responds to claim correspondence in 30 days.

Reference: OAR 836-080-0225 All Subparts.


Findings: Failed. 91% compliance to applicable files. Two paid claim files (9%) failed

this standard.


The Company received a letter from an attorney and responded to it by phone with the

attorney’s assistant 78 days later.


Another attorney wrote to ask for copies of the payment ledgers from the claim file and

the Company did not respond to this request within 30 days.




                                      Number Not   Number         Number
Population            Number          Applicable    Passed         Failed
Reviewed               Units            (N/A)      Standard      Standard

Claims paid              100              78           20             2
Claims denied             50              49            1             0
Subtotal                 150             127           21             2
Less N/A files           127
Total                     23

Note: The N/A files are those without claim correspondence.
                                           31
I recommend the Company respond to claim correspondence within 30 days

in accordance with the provisions of OAR 836-080-0225.


The Company indicated it has reminded all claims personnel to respond to claims

correspondence within 30 days.


Claims Standard #5- Claim files are adequately documented. Reference: OAR 836-080-

0215 and ORS 733.170.


Findings: Failed. 93% compliance. Thirteen files (7%) failed this standard.


The paid claim failures were for the following reasons:


One claim actually contained two separate claims.          The Company informed the

examiner this would be corrected. This claim file did not document the reason for a

processing delay.


An original claim file could not be located.


The investigation log (I-log) in one file contained only these entries: “6-3-97 faxed” and

“7-1-97 reviewed & paid.” The Company explained that the June 3, 1997, fax was a

communication to the body shop that the claim was accepted and repairs were

authorized. The file documentation did not adequately explain the action taken on this

claim.


Another claim’s I-log didn’t clearly document the claim activity and no communication

with the claimant was recorded. The Company explained to the examiner that the I-log

notation “6-27 appt 12:00 6/27” meant that the claimant had changed her mind about

taking her car to a circle of dependability shop and made a drive in appointment at the

                                               32
claims office on June 27th.    However, the file documentation did not show for which

person the appointment was scheduled or why or where the appointment was made.


The nine total loss claims failed for these reasons:

Number of Files       Reason

         1            No documentation is in claim file to support the actual cash
                      value (ACV) established through use of comparable vehicles.

         2            Documentation supporting original settlement offer made to
                      insured is not in the claim file.

         4            File documentation does not support the condition
                      adjustments made to ACV (either additional amounts allowed
                      or subtracted from ACV).

         1            File does not contain documentation indicating when the
                      claimant was informed of the amount offered to settle or the
                      amount originally offered. The Company informed the
                      examiner its normal procedure is to notify the claimant of this
                      amount either by telephone or in person prior to making
                      payment.

         1            File documentation does not explain how the Company
                      arrived at the amount allowed for after market stereo
                      equipment included in the ACV.

Population                 Number         Number Passed       Number Failed
Reviewed                    Units           Standard            Standard

Claims paid                   100                  96                 4
Claims denied                  50                  50                 0
Total loss claims              50                  41                 9
Total                         200                 187                13


I recommend the Company adequately document claim files in accordance

with the provisions of OAR 836-080-0215 and ORS 733.170.


The Company has communicated to all claims personnel the requirement to properly

document claims. Claims management will monitor with routine reviews.




                                             33
Claims Standard #7 – The Company promptly and in good faith equitably settles claims

in which liability has become reasonably clear. Reference: ORS 746.230(1)(f),(h), and

(L).


Findings: Failed. 93% compliance. Seven paid claim files (7%) failed this standard.


It appears these claims were not settled promptly.


Date Bill     Date of        Number of
Received      Payment        Days to Pay        Comments

2/26/97       10/10/97       226                This was a body shop repair bill for a
                                                balance due.

8/12/98       9/25/98        44                 This is a PIP claim. The file
                                                documentation does not indicate the
                                                Company investigated this charge.
                                                Similar bills presented by the same
                                                provider for payment were processed in
                                                less than 30 days.

5/5/97        10/13/97       161                The Company did not realize two PIP
                                                claims should have been established for
                                                this insured who was involved in two
                                                separate accidents. The bills were routed
                                                to the wrong tile and once corrected, the
                                                claim investigation lasted 111 days.




1/15/98       3/4/98         48                 The Company indicated this bill might
                                                not have been matched up to the file
                                                when it was received or it may have been
                                                overlooked by the file handler. This was
                                                a PIP claim.




                                           34
11/25/97         1/27/98      63                   The Company did not write for medical
                                                   information regarding this PIP claim
                                                   until January 26, 1998, 62 days after
                                                   receipt.


The Company informed the examiner that one claim was delayed from September 16,

1997, until January 2, 1998, due to a claim overload. The Company explained the claim

was assigned to an independent examiner who, due to the holidays and bulk transfer of

several files, did not initially review the file until January 2, 1998. This was a third

party legal liability (TPLL) claim.


The CR talked with a TPLL claimant about his claim on November 17, 1997. At that

time, they agreed that if the claimant received any medical bills, he would send copies

of them to the Company. No action was taken on this claim until January 7, 1998, 51

days later, because the CR was waiting for the claimant to submit his medical bills. An

offer to settle was made on January 7, 1998. The file does not indicate medical bills

were ever received from this claimant.

Population          Number         Number Passed          Number Failed
Reviewed             Units           Standard               Standard

Claims paid            100               93                      7


I recommend the Company promptly and equitably settle claims in which

liability has become reasonably clear pursuant to the provisions of ORS

746.230(1)(f), (h) and (L).




Claims Standard #9 – Claim handling practices do not compel claimants to institute

litigation, in cases of clear liability and coverage, to recover amounts due under policies

by offering substantially less than is due under the policy. Reference: ORS

746.230(1)(g).

                                              35
Findings: Passed with comment. In the applicable files reviewed, the examiner did not

note instances in which claimants were compelled to institute litigation. 2,246 bodily

injury claims were paid during the examination period.         Of these, 154 (7%) were

litigated claims. Based on the files reviewed and the information provided, it appears

the Company is in compliance with this standard.


Claims Standard #12 – The Company uses the reservation of rights and excess of loss

letters in accordance with the Company’s established procedures. Reference: ORS

746.240.


Findings: Passed with comment. 100% compliance to applicable files. In addition to

the files referenced below, the examiner reviewed the Company’s established procedures

for use of reservation of rights and excess of loss letters. These procedures do appear to

be in compliance with this standard.


                                 Number Not         Number          Number
Population           Number      Applicable          Passed          Failed
Reviewed              Units        (N/A)            Standard        Standard

Claims paid            100             100              0                  0
Claims denied           50              48              2                  0
Subtotal               150             148              2                  0
Less N/A files         148
Total                    2             148              2                  0

Note: The N/A files are those which did not require either a reservation of rights or

excess of loss letter according to the Company’s established procedures.


Claims Standard #15 – Canceled benefit checks and drafts reflect appropriate claim

handling practices. Reference: ORS 746.240.


Findings: Passed with comment. 100% compliance.




                                             36
The examiner visited the mailroom of a BCO where ten claim payments were selected

for review. The examiner compared the date of the check to the mail date. Nine of the

ten checks contained the same date as the mail date. One check was dated one week

prior to the date of the examiner’s visit. The Company explained that it has been

inadvertently mailed without postage and was returned by the post office. That check

was received by in the BCO the day before the examiner’s visit. This appeared to be a

reasonable explanation for the payment delay.


Claims Standard #17 – Total loss settlements are handled in accordance with policy

provisions and applicable statutes, rules and regulations. Reference: OAR 836-080-

0240(1).


Findings: Failed. 74% compliance. Thirteen total loss claim files (26%) failed this

standard.


The Company uses an outside vendor to develop the ACV for some losses. In other

cases, NADA (National Automobile Dealers Association), Blue Book or comparable local

vehicles are used to establish the settlement value. The vendor provides the Company

with guidelines to follow when rating the condition of the loss vehicle. Automobiles in

dealer-ready condition are used as the benchmark for comparison and deductions are

made to the ACV to reflect the cost the dealer would incur in order to bring the vehicle

up to showroom standards.



Two files did not contain documentation to support the condition adjustments made to

the ACV.


One file lacks information regarding the comparable vehicle used to establish the ACV.

This was a vehicle purchased new in February of 1998 and totaled in May of 1998. The

                                          37
CR rated the condition as average in all categories even though this was a nearly new

car. Remarks in the claim file regarding the categories are as follows:

       Mechanical           As New Per Owner
       Body/Glass           No Prior Damage
       Paint                Excellent Condition
       Interior             Grey Cloth
       Tires                General Tires with tread measurements of
                            9/32, 9/32, 10/32, and 10/32

The amount paid for this total loss was 80% of the purchase price.


Two claim files did not include documentation to support the first ACV offered.         It

appears the Company did not consider the comparable vehicles located and presented to

the Company by the claimant when settling one of these claims.


The Company did not consider all of the equipment included on a total loss vehicle when

determining the ACV. During this examination, the claimant received an additional

payment of $325.00 to correct this oversight.


The Company failed to include all equipment on another vehicle when the ACV was

established. The $30.00 value of the trailering package was omitted. On this same loss

the condition of the tires was not correctly reported. The tires were in average condition

and were documented as above average. This resulted in an overstatement of value of

approximately $30.00 to $50.00.       Since the value of the omission and condition

reporting error are nearly the same, it appears no adjustment to this total loss payment

is necessary.


During the examination, the Company sent an additional $46.00 to a claimant whose

original total loss settlement was underpaid because the condition of the tires was not

correctly reported when the ACV was established.




                                           38
Claim documentation in one file specified the Blue Book was used as the basis for

negotiating the settlement of this claim since no comparable vehicles were available.

The suggested retail in the Blue Book was $1,275.00. The Company offered $1,100.00.

The body and glass, paint and interior of this vehicle were all rated as exceptional. The

tires and mechanical condition were above average and the car did have a rebuilt

engine.   When the examiner asked how the Company arrived at the lower amount

offered, the Company explained the NADA value is $650.00. The file did not indicate

the NADA information was used when the ACV was established.


The Company assigned an average rating to the mechanical condition of a vehicle that

had been stolen and burned.      The Company based this rating on photos from the

insured and the insured’s statement of condition. The claim form completed by the

insured indicated the vehicle was in excellent condition. The file documentation does

not appear to support the condition rating assigned which resulted in a $41.00 ACV

reduction.


Two claims contained remarks regarding the condition of the vehicle that do not appear

to agree with the condition rating assigned to them. One of these had no damage to the

body or glass and no noticeable damage to the paint. These items were rated average

and $465.00 was deducted from the ACV. Based on the guidelines provided by the

vendor used to set the ACV, it appears these should have been rated above average and

no ACV adjustment made. The other vehicle’s body and glass had no dings or dents and

was rated average. $124.00 was deducted from the ACV. Again, based on the vendor’s

guidelines, it appears these items should have been rated above average and no

deduction taken.




                                           39
The CR allowed $250.00 credit for undocumented mechanical work on a total loss

vehicle.   When this case was presented to the vendor to determine the ACV, the

mechanical condition was rated average with no specific reason why this rating was

assigned. $39.00 was deducted from the ACV. It appears the file information does not

support the ACV established to settle this claim.


Population            Number        Number Passed          Number Failed
Reviewed               Units          Standard               Standard

Total loss claims         50                37                    13

Disposition                            Number         % To Total

First offer accepted                      35               70%
Negotiated ACV with claimant              12               24
Appraisal process used                     3                6
Total                                     50              100%


I recommend the Company process total loss settlements in accordance with

policy provisions and applicable rules and regulations pursuant to OAR 836-

080-0240(1).


The Company indicated it has provided additional information and procedures to claims

personnel and has instructed management to perform routine quality assurance

reviews.




Claims Standard #18 – Automobile claims are properly handled in accordance with

policy provisions and applicable statutes, rules and regulations. Reference: OAR 836-

080-0240(2), (3), (5), (6), (7), and (8) and ORS 746.230(1)(i).


Findings: Passed with comment. 100% compliance to applicable files.




                                               40
                                  Number Not         Number      Number
Population           Number       Applicable          Passed      Failed
Reviewed              Units         (N/A)            Standard    Standard

Claims paid            100               17                83           0
Claims denied           50                6                44           0
Subtotal               150               23               127           0
Less N/A files          23
Total                  127               23               127           0


Note: The N/A files are bodily injury, third party legal liability, and personal injury

protection claims.


Claims Standard #19 – Deductible reimbursement to insureds upon subrogation

recovery is made in a timely and accurate manner. Reference: OAR 836-080-0240(4).


Findings: This standard did not apply to any of the units reviewed. The examiner

evaluated the Company’s established subrogation procedures.        The procedures do

appear to be in compliance with this standard.

                                Number Not          Number      Number
Population           Number     Applicable          Passed       Failed
Reviewed              Units       (N/A)            Standard     Standard

Claims paid           100            100              0             0
Less N/A files        100
Total                   0            100              0             0


Note: The N/A files are those claim files reviewed which did not involve subrogation

recovery of the claimant’s deductible.



Additional Findings

Paid Claims

One paid claim reviewed was overpaid by $500.00 in 1997. The Company indicates it

will attempt to collect this overpayment.




                                              41
Denied Claims

Twelve (24%) of the 50 denial letters reviewed were written under an incorrect company

name. These letters carried the name Farmers Insurance Company of Oregon above

the signature line. The Company recognizes the need for improvement in this area and

informed the examiner that training sessions regarding this issue will be held at every

claims office by May 1, 1999.


Total Loss

It appears there may be a training deficiency for CRs who assign the condition rating of

tires on total loss vehicles.


The examiner reviewed ten of the total loss files to evaluate the consistency of rating

tire condition. From the information reviewed, it appears the Company assigned tire

ratings on an inconsistent basis. 40% of the assigned ratings do not appear to comply

with the Company’s guidelines. If the reasons for the lower ratings were due to uneven

tread wear, the files should have been documented to reflect that fact.


It also appears the methods used to evaluate the mechanical condition of vehicles when

the CR is unable to get the hood open might be inconsistent. One loss vehicle totaled in

August of 1997 was a 1995 Ford Escort with 21,869 miles.             The CR rated the

mechanical condition average with a notation “couldn’t get hood open.” $35.00 was

deducted from the ACV due to this condition rating.


Another case was reviewed during the examination for a 1997 Pontiac Grand Prix with

25,757 miles totaled in November of 1997. The CR was unable to get the hood open and

reported this fact to the vendor used to determine the ACV.        No other mechanical

condition rating was reported to the vendor and no condition adjustment was made to

the ACV for this item.

                                           42
The inconsistent rating of total loss vehicles could result in the inequitable treatment of

policyholders. When the same or similar conditions exist and the CRs do not use the

same methods of rating the loss vehicles, deductions are made to the ACV for some

losses and not for others.


The examiner met with Company personnel responsible for the claims area to learn

about the procedures for settling total loss claims. The Company contacts the claimant

to make the settlement offer and to explain the basis for establishing the ACV. If the

claimant rejects the initial offer, the Company informs the claimant of his or her

options.   The claimant may conduct their own investigation to locate comparable

vehicles available or otherwise explain why the initial offer is not acceptable. When the

Company and the claimant can’t resolve their differences, the claimant may elect to

follow the appraisal process set forth in the policy contract. When the Company is

notified that the appraisal process will be used, the Company will obtain a concurrent

appraisal. The Company informed the examiner that the appraisal process should be

the last resort for settling these claims.       The claim files should document all

communication with the claimant regarding the settlement process.


Two of the total loss files evaluated indicate the Company failed to follow its own

procedures. In one case the claimant rejected the initial offer. The Company did not

attempt to negotiate the ACV but advised the claimant of the appraisal provision in the

policy. In another case where the initial offer was rejected, the claimant was told to go

to appraisal and the Company did not attempt to negotiate the ACV. The claimant did

provide the Company with information regarding comparable vehicles located and the

Company did not consider this additional data when settling the claim.




                                            43
A recommendation regarding proper handling of total loss claims appears under Claims

Standard #17.


     COMPLIANCE WITH PRIOR EXAMINATION RECOMMENDATIONS

This was the first market conduct examination for this Company. Therefore, there were

no prior recommendations.


                                    CONCLUSION

      Recommendation                                                            Page

1     I recommend the Company maintain documentation of written                   17
      rejection for higher limits of uninsured and underinsured motorist
      coverage in accordance with the provisions of ORS 742.502(2)(a) and
      OAR 836-054-0000(2).

2     I recommend the Company not use a driving record older than three           18
      years immediately preceding the issuance or renewal for the purpose
      of determining whether or not to issue or renew a policy and the
      calculation of rates in compliance with ORS 746.265(2).

3     I recommend the Company’s records accurately document all forms             19
      used with policies at the time of issuance in order to determine if the
      forms were filed and approved at the time of use in compliance with
      ORS 742.003.

4     I recommend the Company’s documentation adequately support all              20
      decisions made by the underwriters and underwriting decisions made
      by agents in accordance with ORS 733.170

5     I recommend the Company maintain documentation regarding its                20
      underwriting decisions to sufficiently demonstrate its underwriting
      practices are not unfairly discriminatory in accordance with ORS
      746.015, ORS 746.018 and OAR 836-081-0030.


      Recommendation                                                            Page

6     I recommend the Company provide the applicant or policyholder with          22
      the specific reason for an adverse underwriting decision in accordance
      with the provisions of ORS 746.650.

7     I recommend the Company provide the insured at least 30 days                23
      advance notice of cancellation and include the specific reason for
      nonrenewal in accordance with the provisions of ORS 742.564.


                                            44
8    I recommend the Company maintain its policy rating documentation         25
     and rate pages in such a manner that the rates for each policy can be
     easily and readily verified as filed rates in accordance with ORS
     733.170.

9    I recommend the Company resolve claims in 30 days unless a delay         31
     letter (45 days) has been sent in accordance with OAR 836-080-
     0235(1) and (2).

10   I recommend the Company respond to claim correspondence within 30        32
     days in accordance with the provisions of OAR 836-080-0225.

11   I recommend the Company adequately document claim files in               34
     accordance with the provisions of OAR 836-080-0215 and ORS
     733.170.

12   I recommend the Company promptly and equitably settle claims in          35
     which liability has become reasonably clear pursuant to the provisions
     of ORS 746.230(1)(f), (h) and (L).

13   I recommend the Company process total loss settlements in                40
     accordance with policy provisions and applicable rules and regulations
     pursuant to OAR 836-080-0240(1).




                                         45
MANAGEMENT AFFIRMATION




          46
                                ACKNOWLEDGMENT

The cooperation and assistance rendered by the officers and employees of the Company

during this examination is hereby acknowledged and appreciated.


A special thanks is extended to the examination coordinator for his courtesy, assistance,

and promptness in providing, correlating, or coordinating all requested documents and

statistics necessary to ensure a smooth transition during the overall examination

process. The responsibilities that were undertaken during this examination were in

addition to the scope of his regular assigned duties.


In addition to the undersigned, Gayle L. Woods, AIE, and Kathleen Kalk, insurance

examiners for the State of Oregon, Department of Consumer and Business Services,

Insurance Division, participated in this examination.


Respectfully submitted,



____________________________
Jann Goodpaster, CIE, CPCU
Chief Market Conduct Examiner
Market Conduct Section
Insurance Division
Department of Consumer and Business Services
State of Oregon




                                            47
                                    AFFIDAVIT



STATE OF OREGON            }
                           }   ss
County of Marion           }



Jann Goodpaster, being duly sworn, deposes and says that the foregoing market

conduct report of examination as of June 30, 1998, of Mid-Century Insurance Company,

Los Angeles, California, subscribed by her is true to the best of her knowledge and

belief.




____________________________
Jann Goodpaster, CIE, CPCU
Chief Market Conduct Examiner
Market Conduct Section
Insurance Division
Department of Consumer and Business Services
State of Oregon



Subscribed and sworn to before me on the _______ day of ___________________, 2000.


___________________________________
Notary Public for the State of Oregon
My commission expires: March 22, 2001




                                         48
                                           APPENDIX A

                                     STANDARDS
                           MID-CENTURY INSURANCE COMPANY
                            MARKET CONDUCT EXAMINATION


      Complaints

1   All complaints are recorded on the Company complaint             ORS 732.302(1), ORS 746.240
    register.
2   The Company has adequate complaint handling procedures           ORS 732.302(1), ORS746.240
    in place and communicates such procedures to policyholders.
3   The Company furnished a response within 21 days of an            ORS 731.296, OAR 836-080-
    inquiry from the Insurance Commissioner.                         0225(2)
4   The Company responds to Insurance Commissioner                   OAR 836-080-0225(2)
    complaints adequately and conclusively.
5   The Company furnished a response within 30 days of an            OAR 836-080-0225(3)
    inquiry from an insured.
6   The Company response to an inquiry from an insured is            OAR 836-080-0225(3)
    adequate and answers the questions being raised.


      Underwriting and Rating

1   The rates charged for the policy coverage are in accordance      ORS 737.205
    with filed rates (if applicable) or the company rating plan.
2   Disclosures to insureds concerning rates and coverage are        ORS 737.205 and ORS 742.566
    accurate and timely.
3   An insured or applicant may not be assigned to a higher risk     ORS 742.449
    category than the person would normally be assigned
    because the person allowed a motor vehicle liability policy to
    lapse or had driving privileges suspended due to a non-
    driving offense.
4   Written rejection for higher limits of uninsured and             ORS 742.502(2)(a) and OAR
    underinsured motorist coverage limits must be obtained.          836-054-0000
5   Named exclusions are signed by all named insureds and            ORS 742.450(5)
    comply with all rules and regulations.
6   Individual Risk Package Modifiers (IRPM) are used in             Bulletin 82-4
    accordance with the instructions from the Oregon Insurance
    Division.
7   The company underwriting practices are not unfairly              ORS 746.015, ORS 746.018, and
    discriminatory. The company adheres to applicable statutes,      OAR 836-081-0030
    rules and regulations and company guidelines in the
    selection of risk.




                                                 49
8    Employment driving record may not be used to determine if        ORS 746.260 and ORS
     the file is issued or renewed or in calculation of rates.        746.265(1)
9    For the purpose of determining whether or not to issue or        ORS 746.265(2)
     renew a policy and the calculation of rates an insurer may
     not use a driving record older than three years immediately
     preceding the issuance or renewal.
10   All forms and endorsements forming a part of the contract        ORS 742.003
     are listed on the declarations page and should be filed with
     the department of insurance.
11   Underwriting, rating and classifications are based on            ORS 746.240
     adequate information developed at or near the inception of
     the coverage rather than near expiration, or following a
     claim.
12   File documentation adequately supports decisions made.           ORS 733.170
13   The company does not engage in collusive or anti-competitive     ORS 746.240
     underwriting practices.
14   Rejections and declinations are not unfairly discriminatory.     ORS 746.015, ORS 746.018 and
                                                                      OAR 836-081-0030
15   Cancellation/nonrenewal notices comply with policy               ORS 742.566 through ORS
     provisions and state laws and company guidelines.                742.572 and ORS 746.650
     Cancellation must be made within the first 60 days of the
     policy except for the exemption. Nonrenewal and changes in
     policy must be sent at least 30 days in advance of the
     renewal date.
16   Cancellation/nonrenewal notices comply with policy               ORS 742.224
     provisions and state laws, including the amount of advance
     notice provided to the insured and other parties to the
     contract.
17   The insurer reports the name, address, and VIN number of         ORS 742.580
     each vehicle covered by a motor vehicle liability policy
     whether the policy was bought, canceled, or not renewed
     within 30 days of cancellation or nonrenewal and within 15
     days of issuance to the Department of Transportation.
18   Rescissions are not made for nonmaterial misrepresentations      ORS 746.240
     in accordance with the Company’s established procedures.


      Claims

1    The initial contact by the Company with the claimant is          OAR 836-080-0225
     within 30 days.
2    Investigations are conducted within 45 days.                     OAR 836-080-0230
3    Claims are resolved in 30 days unless a delay letter (45 days)   OAR 836-080-0235(1) and (4)
     has been sent.
4    The Company responds to claim correspondence in 30 days.         OAR 836-080-0225 All Subparts
5    Claim files are adequately documented.                           OAR 836-080-0215, ORS
                                                                      733.170




                                                  50
6    Claims are not denied without first conducting a reasonable        ORS 746.230(1)(c) and (d)
     investigation.
7    The Company promptly and in good faith equitably settles           ORS 746.230(1)(f), (L) and (h)
     claims in which liability has become reasonably clear.
8    The Company did not misrepresent the facts or policy               ORS 746.230(1)(a)
     provisions while settling a claim.
9    Claim handling practices do not compel claimants to institute      ORS 746.230(1)(g)
     litigation, in cases of clear liability and coverage, to recover
     amounts due under policies by offering substantially less
     than is due under the policy.
10   The Company did not attempt to settle a claim on the basis         ORS 746.230(1)(i)
     of an altered application without notice to or consent of the
     applicant.
11   The Company did not delay investigation or payment of              ORS 746.230(1)(k)
     claims by requiring a claimant to submit a preliminary
     claims report and then requiring subsequent submission of
     loss forms when both require essentially the same
     information.
12   The Company uses the reservation of rights and excess of           ORS 746.240
     loss letters in accordance with the Company’s established
     procedures.
13   Claim files are reserved in accordance with the Company’s          ORS 746.240
     established procedures.
14   Denied and closed-without-payment claims are handled in            OAR 836-080-0235(1), ORS
     accordance with policy provisions and state law.                   746.230(1)(m) and OAR 836-080-
                                                                        0235(1)
15   Canceled benefit checks and drafts reflect appropriate claim       ORS 746.240
     handling practices.
16   Personal injury protection claims are properly handled in          ORS 742.520 through ORS
     accordance with policy provisions and applicable statutes,         742.544
     rules and regulations.
17   Total loss settlements are handled in accordance with policy       OAR 836-080-0240(1)
     provisions and applicable statutes, rules and regulations.
18   Automobile claims are properly handled in accordance with          OAR 836-080-0240(2), (3), (5),
     policy provisions and applicable statutes, rules and               (6) (7) and (8) and ORS
     regulations.                                                       746.230(1)(i)
19   Deductible reimbursement to insureds upon subrogation              OAR 836-080-0240(4)
     recovery is made in a timely and accurate manner.




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