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UNITED SERVICES AUTOMOBILE ASSOCIATION USAA CASUALTY INSURANCE

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					      UNITED SERVICES AUTOMOBILE ASSOCIATION
                        (NAIC# 25941)
        USAA CASUALTY INSURANCE COMPANY
                        (NAIC# 25968)

                 9800 Fredericksburg Road
                  San Antonio, TX 78288




                                EXAMINATION DATE: July 9, 2001
                              EXAMINATION PERIOD: May 1, 2000
                                        THROUGH April 30, 2001




BY:   MARKET CONDUCT EXAMINERS OF THE
      MARYLAND INSURANCE ADMINISTRATION
PARRIS N. GLENDENING                                                                                  STEVEN B. LARSEN
      GOVERNOR                                                                                            COMMISSIONER




KATHLEEN KENNEDY                                                                                      DONNA B. IMHOFF
   TOWNSEND                                                                                           DEPUTY COMMISSIONER
 LIEUTENANT GOVERNOR


                                                                                                       ROBERT BECKER
                                        STATE OF MARYLAND                                           ASSOCIATE COMMISSIONER
                                                                                                     PROPERTY & CASUALTY
                            MARYLAND INSURANCE ADMINISTRATION
                       525 ST. PAUL PLACE, BALTIMORE, MARYLAND 21202-2272
                                       WRITER’S DIRECT DIAL: 410-468-2321
                                          Facsimile Number: 410-468-2306
                                       e-mail : dewen@mdinsurance.state.md.us




                 I, Steven B. Larsen, Insurance Commissioner of the State of Maryland, do hereby

       certify that the annexed copy of the Market Conduct Examination United Services

       Automobile Association and USAA Casualty Insurance Company, as of April 30, 2001,

       whose home office is located at 9800 Fredericksburg Road, San Antonio, TX 78288, is a

       true copy of the original report, as amended, on file with the Maryland Insurance

       Administration and also includes a true copy of the Order/Consent Agreement issued as a

       result of the findings set forth therein.



                                                          IN WITNESS WHEREOF, I have hereunto
                                                          set my hand and affixed the official seal of
                                                          this Administration at the City of Baltimore,
                                                          Maryland     this     ___9___      day     of
                                                          ______May______ 2002.


                                                          _____Signatures on file with original____
                                                          Steven B. Larsen, Insurance Commissioner
                          TABLE OF CONTENTS


PAGE

       SALUTATION............................................      1

I.     EXECUTIVE SUMMARY.....................................       2

II.    SCOPE OF EXAMINATION..................................       3

III. COMPANY PROFILE.......................................         4

IV.    CERTIFICATE OF AUTHORITY..............................       5

V.     SALES

       Agent Licensing.......................................      6

               Issue A – Ins. §10-118(a)(1).....................    7
               Issue B – Ins. §10-118(a)(1).....................    8
               Issue C – Ins. §2-207(b)(1)(2)...................   10

VI.    SUMMARY OF RECOMMENDATIONS............................      11

VII. CLOSING...............................................        12

VIII. EXAMINATION REPORT SUBMISSION........................        13

       Exhibits..............................................      14
The Honorable Steven B. Larsen
Commissioner of Insurance
State of Maryland
525 St. Paul Place
Baltimore, Maryland 21202

Dear Commissioner Larsen:

Pursuant to your instructions and authorization, a targeted examination has been
made of the market conduct affairs of the

                   UNITED SERVICES AUTOMOBILE ASSOCIATION
                     UNITED SERVICES CASUALTY COMPANY

whose home office is located at 9800 Fredericksburg Road, San Antonio, TX
78288. The report of such Examination is being respectfully submitted.

Sincerely,

Signatures on file with original

Dudley B. Ewen, Chief Examiner
P/C Market Conduct Section
der/USAA Proposed Report.doc
      I.     EXECUTIVE SUMMARY


The Maryland Insurance Administration (hereinafter referred to as "MIA")
previously performed Market Conduct examinations which highlighted the fact
that employees, working in the Member Acquisition Center, were soliciting on
behalf of United Services Automobile Association and USAA Casualty Insurance
Company, hereinafter referred to as the “Companies”, without appropriate
qualifications as an agent. The Companies, in response to the prior Market
Conduct examination, sent a letter dated September 16, 1998 (Exhibit A)
indicating, "...we will accept the Department's determination that its salaried
representatives who engage in solicitation, negotiation or binding of coverage are
subject to the requirement to obtain an agent's license." The Companies further
stated, "We also agreed to propose an action plan establishing the process that
USAA will utilize to accomplish the licensing of its employees." The focus of the
examination was to determine whether the Companies' employees were properly
licensed as Maryland agents and appointed by the Companies. The purpose of
the examination was to determine if the Companies were in compliance with the
MIA's licensing insurance laws and regulations. The file review was based on a
review of 45% of the policies solicited during the examination period.

Our review revealed that the Companies have made significant overall
improvement in its compliance with Maryland's licensing laws and regulations,
however, the review revealed that the Companies, in certain instances,
transacted insurance business with individuals that were not properly authorized
or appointed and that the Companies, therefore, are in violation of Section 10-
118(a)(1) of the Maryland Insurance Code.

The examination findings are detailed on the following pages.
      II.    SCOPE OF EXAMINATION


A targeted Market Conduct Examination has been performed on:

               UNITED SERVICES AUTOMOBILE ASSOCIATION
                  USAA CASUALTY INSURANCE COMPANY

at its offices in San Antonio, Texas and a report thereon is submitted as follows:

The Examination was conducted pursuant to Sections 2-205, 2-207, 2-208 and
2-209 of the Insurance Article and generally covered the period from May 1, 2000
through April 30, 2001. The focus of the examination was to determine whether
the Companies' employees were properly licensed as Maryland agents and
appointed by the Companies. The purpose of the Examination was to determine
if the Companies were in compliance with the MIA's licensing insurance laws and
regulations. The file review was based on a review of 45% of the policies
solicited during the examination period.

All unacceptable or noncomplying practices may not have been discovered and
failure to identify or criticize improper company practices does not constitute
acceptance of such practices. Examination report recommendations that do not
reference specific insurance laws, regulations, or bulletins, are presented to
improve the Companies' practices and ensure consumer protection.
      III.   COMPANY PROFILE


The United Services Automobile Association began business on June 20, 1922
as the United States Army Automobile Insurance Association.

The USAA Casualty Insurance Company was incorporated on September 6.
1968 under the laws of Texas. It began business on December 1, 1969. The
Company operated under the title United Services Casualty Company until
December 2, 1970, when the current title was adopted.

A.M. Best assigns each company a Financial Size Category. Best's Financial
Size Category is based on reported policyholders' surplus plus conditional or
technical reserve funds, such as mandatory securities valuation reserve, other
investment and operating contingency funds and miscellaneous voluntary
reserves reported as liabilities. The Financial Size Category is represented by
Roman numerals ranging from Class I (the smallest) to Class XV (the largest).
The Financial Size Category for the Companies is XV.
      IV.    CERTIFICATE OF AUTHORITY


The Companies’ Certificates of Authority to transact property and casualty
insurance in the State of Maryland were last issued on July 1, 2001. Both
Companies are licensed to do business in DC and all states.
       V.     SALES

                                  Agent Licensing


The Companies provided the MIA with listings of all policies issued by individuals
employed by the Companies during the examination period. The MIA, to
determine if the Companies were in compliance with the licensing requirements
applicable to the Insurance Article, reviewed the lists. Due to record retention
practices, the soliciting agents for all of the policies could not be identified. The
listing provided by the Company contained twenty-one thousand five hundred
ninety-five (21,595) policies. The soliciting agent could be identified for nine
thousand seven hundred seventy-seven (9,777) policies. This represents forty-
five percent (45%) of the population.

The soliciting individuals who were listed for the policies issued by the
Companies for the personal automobile and homeowners new business policies
or quotes issued by the Companies during the examination period were
compared with the licensing records of the Maryland Insurance Administration.

A total of nine thousand seven hundred seventy-seven (9,777) policies were
reviewed. In addition to the above policies reviewed thirteen (13) policy
transactions were reviewed that were processed by Customer Service
Representatives. The review revealed a total of five (5) exceptions detailed on
the following pages.
Issue A -- Violation of Section 10-118(a)(1)
Accepting business solicited by individuals acting as an agent who did not hold an
appointment with the Companies.

Section 10-103(a) provides:

       (a) Agents - In general. - Except as otherwise provided in this
       article, before a person acts as an agent in the State, the person
       must obtain:
       (1) a certificate of qualification in the kind or subdivision of
       insurance for which the person intends to act as an agent; and
       (2) an appointment from an insurer.

As a result, the Companies are in violation of Section 10-118(a)(1). Section 10-
118(a)(1) provides:

       (a) In general. - (1) When an insurer doing business in the State
       makes or terminates an appointment, the insurer immediately shall
       file notice of the appointment or termination and the reasons for the
       termination in the manner specified by the Commissioner.

Our review revealed that the Companies accepted two (2) policies from
individuals that had not obtained certificates of qualification and/or an
appointment as required under Section 10-103(a) of the Insurance Article
detailed as follows:

 SECTION     POPULATION   NO. OF POLICIES   NO. OF POLICIES     NUMBER OF      EXHIBIT
                           WRITTEN BY AN    WRITTEN BY AN      INDIVIDUALS/
                          INDIVIDUAL WITH   AGENT WITH NO     AGENTS WRITING
                          NO CQ and APPT         APPT          THE POLICIES
Homeowners      4650                               2                 2           B


Recommendation #1

Within 30 days, the Companies should demonstrate why they should not be
considered in violation of the requirements set forth in Section 10-118(a)(1) of the
Insurance Article. In the event the Companies are unable to provide such
documentation, they should demonstrate that procedures have been put in place
to assure compliance with Maryland insurance laws and regulations.
Furthermore, the Companies are directed to cease doing business with
individuals who do not hold an appointment with the Companies.
Issue B -- Violation of Section 10-118(a)(1).
Customer Service Representatives soliciting and/or quoting insurance premiums and
coverages, but did not hold a Maryland certificate of qualification and an appointment with
the Companies.

Section 10-103(a) provides:

       (a) Agents - In general. - Except as otherwise provided in this
       article, before a person acts as an agent in the State, the person
       must obtain:
       (1) a certificate of qualification in the kind or subdivision of
       insurance for which the person intends to act as an agent; and
        (2) an appointment from an insurer.

As a result, the Companies are in violation of Section 10-118(a)(1). Section 10-
118(a)(1) provides:

       (a) In general. - (1) When an insurer doing business in the State
       makes or terminates an appointment, the insurer immediately shall
       file notice of the appointment or termination and the reasons for the
       termination in the manner specified by the Commissioner.

When reviewing the sample of new auto and homeowner business for the
examination period it was found that thirteen (13) customer service
representatives did not appear on the company list of licensed agents. These
thirteen (13) customer service representatives discussed policy information,
coverage and/or quoted premiums to the consumer. The Companies provided
documentation that explained what each customer service representative
discussed with the consumer during the transaction. The documentation revealed
that three (3) of the thirteen (13) customer service representative acted in the
capacity of an agent by quoting premiums and coverage to the consumer. These
three (3) customer service representatives had not obtained certificates of
qualification and an appointment.


  SECTION        NO. OF CUSTOMER            NO. OF CUSTOMER SERVICE              EHXIBIT
                      SERVICE            REPRESENTATIVES THAT DICUSSED
                 REPRESENTATIVES      QUOTING AND COVERAGE ISSUES ACTING
                                      AS AGENT WITH NO CQ AND APPOINTMENT
   AUTO                  6                              2                           C
HOMEOWNERS               7                              1                           D


Recommendation #2

Within 30 days, the Companies should demonstrate why they should not be
considered in violation of the requirements set forth in Section 10-118(a)(1) of the
Insurance Article. In the event the Companies are unable to provide such
documentation, they should demonstrate that procedures have been put in place
to assure compliance with Maryland insurance laws and regulations.
Furthermore, the Companies are directed to cease doing business with
individuals who do not hold a Maryland certificate of qualification and an
appointment with the Companies.
Issue C
Inability to provide records in the MIA's requested format for review.

Section 2-207(b)(1)(2) provides:

       (b)Production of records and help with examination.- Each person
       that is examined and its officers, employees, agents, and
       representatives shall:
       (1) produce and make freely available to the Commissioner or an
       examiner the accounts, records, documents, files, information,
       assets, and matters that are in the possession or control of the
       person and relate to the subject of the examination; and
       (2) otherwise help the examination to the extent reasonably
       possible.

  LINE OF     POPULATION      NO. OF POLICIES WRITTEN BY AN UNIDENTIFIABLE
 BUSINESS                                      INDIVIDUAL
    Auto         13,146                           7,951

 Homeowners       8449                           3,867



Recommendation #3

The Companies indicated during the examination that they were unable to
capture the employee number of the Customer Service Representatives for each
new policy issued during the examination period but the information could be
seen in their on-line documentation system. In a letter dated July 25,
2001(Exhibit E), the Companies stated, "...We are attempting to resolve this
issue for future audits...." While the MIA is concerned that the information was
unable to be captured for the electronic listings provided, the MIA will accept that
the Companies are working to resolve this issue and that the information was
available on the on-line documentation system. No specific findings of violation
of Maryland law will be reported under this section of the report.
    VI.     SUMMARY OF RECOMMENDATIONS


ISSUE        RECOMMENDATION ISSUE               RECOMMENDATION NUMBER   PAGE NUMBER
  A       Violation of Section 10-118(a)(1)              1                    7
  B       Violation of Section 10-118(a)(1)              2                    8
  C       Violation of Section 2-207(b)(1)(2)            3                   10
      VII.   CLOSING


A total of nine thousand seven hundred seventy-seven (9,777) policies were
reviewed for the examination period. A total of five (5) exceptions are noted
herein.
       VIII.   EXAMINATION REPORT SUBMISSION


The courtesy and cooperation extended by the Officers and Employees of the
Companies during the course of the Examination is hereby acknowledged.



___Signature on file with original______
Dudley B. Ewen, A.I.E., Chief Examiner
P&C Market Conduct Section


In addition, the following individuals participated in this examination and in the
preparation of this Report.


Dawna Ruley
P&C Market Conduct Section


Joan Mulligan
Contractual Market Conduct Examiner
                              EXHIBITS*



*Attachments and exhibits named in this file may be available with a written request
addressed to the Public Information Act Coordinator.
IN THE MATTER OF THE        * BEFORE THE STATE OF MARYLAND
                            *
INSURANCE ADMINISTRATION    * INSURANCE ADMINISTRATION
                            *
          v.                *
                            *
UNITED SERVICES AUTOMOBILE  *
 ASSOCIATION (NAIC # 25941) *
                            *
USAA CASUALTY INSURANCE     *
 COMPANY (NAIC # 25968)     * CASE NO. MIA-214-5/02
                            *
*******************************************
****


                         ORDER - CONSENT AGREEMENT


WHEREAS, the State of Maryland, Insurance Administration (hereinafter "Insurance

Administration"), conducted a Market Conduct Examination of United Services

Automobile Association and USAA Casualty Insurance Company (hereinafter

"Respondent"), whose home office is located at 9800 Fredericksburg Road, San

Antonio, TX 78288, pursuant to the Insurance Article, § 2-205 of the Annotated

Code of Maryland; and



WHEREAS, such examination disclosed violations of §§ 2-207(b)(1)(2) and 10-

118(a)(1) of the Insurance Article; and



WHEREAS, the Respondent did promptly and voluntarily take corrective measures

pursuant to recommendations of the Insurance Administration; and
WHEREAS, both parties are desirous of resolving this matter presently pending

before the Insurance Administration; and



WHEREAS, the Insurance Administration has considered the requirements of State

Government Article §10-1001 and COMAR 09.30.81 in determining the scope of the

penalty imposed upon Respondent in this Order/Consent Agreement.



ACCORDINGLY, by the powers vested in me under the Insurance Article of the

Annotated Code of Maryland, and in view of the Consent of the Respondent herein

to the terms of the Order, it is hereby ORDERED that:



1.   Respondent shall immediately comply with §§ §§ 2-207(b)(1)(2) and 10-

118(a)(1) of the Insurance Article.



2. Pursuant to § 4-113(d) of the Insurance Article, the Respondent will pay an

administrative penalty to the State of Maryland in the amount of one thousand

seven hundred dollars ($1,700.00).



3.   Respondent accepts the Market Conduct Examination Report consisting of

fourteen (14) pages and five (5) exhibits submitted pursuant to the Insurance

Article, § 2-205 of the Annotated Code of Maryland.
4. This Consent Order is the Final Order of the Insurance Commissioner on this

matter.



                                            WITNESS the HAND and the SEAL of the
                                            Insurance Administration, this ___9___
                                            day of ____May_____, 2002.


                                            ___Signatures on file with original______
                                            Steven B. Larsen
                                            Insurance Commissioner

                            RESPONDENT'S CONSENT

Respondent hereby consents to the above Order.

                                            WITNESS the HAND and the SEAL of the
                                            Respondent this ___1___ day of
                                            ______May_______, 2002.


                                            ____Signatures on file with original_____
                                            United Services Automobile Association
                                            USAA Casualty Insurance Company

ATTEST:


___Signatures on file with original______

				
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