NAII Says Amendments to Calif. Regulations Makes Claims Handling More Difficult, Expensive for Insur

Proposed amendments to California’s fair claims settlements practices regulations exceed the Department of Insurance’s authority and would prevent insurers from settling claims in a prompt, efficient, and fair manner, according to the National Association of Independent Insurers (NAII). Sam Sorich, senior vice president and general counsel voiced the Association’s concerns about the proposed amendments at a Department of Insurance hearing held May 8.

“Existing regulations set forth procedures for the insurance commissioner to take enforcement action against an insurer for unfair claims practices that are not specifically defined in the Insurance Code,” Sorich commented. “The proposed amendments would allow the commissioner to take enforcement action without any obligation to follow the Insurance Code. This change is not authorized by statute and is clearly beyond the Department’s regulatory authority.”

The Department of Insurance is also proposing amendments to the “proof of claim” standards that would make it difficult for insurers to determine when an insurer’s responsibility to accept or deny a claim begins. Such a change, said Sorich, would blur commonly accepted definitions in current regulations and create vagueness and uncertainty about insurers’ claims handling obligations.

“The proposed changes would violate the regulatory standards of clarity and consistency,” Sorich remarked. According to the state’s Government Code, regulations must be ‘easily understood by those persons directly affected by them’ and ‘in harmony with existing statutes, court decisions or other provisions of law.’ Not only are the proposed amendments not easily understood by the insurers that must comply with them, they are inconsistent with other provisions of the fair claims settlement regulations.”

Sorich noted that the amendments state that proof of claim would include “any evidence or documentation in the claimant’s possession.” This means that even though no evidence or documentation is in the possession of the insurer, the company would still be obligated to accept or deny a claim.

“This is completely unreasonable,” Sorich commented. “An insurer cannot be expected to accept or deny a claim when it has received no evidence or documentation or when all such evidence is in the claimant’s possession. This proposal only makes the claims process more difficult and expensive for insurers and consumers.”

Sorich also called into question proposed amendments that would make an insurer responsible for the accuracy of any data that the insurer uses to evaluate a claim. Such a change would oblige the insurer to take responsibility for erroneous data put forth by the claimant and with which the insurer may disagree. “This is an unreasonable and unfair obligation to impose on insurers,” Sorich added.

Finally, NAII objected to two new proposed regulations relating to use of direct repair body shops. A new provision in the DOI proposal precludes insurers from capping claims payments on vehicle repairs when insureds choose to have their vehicles repaired at a facility not recommended by the insurer.

“This is unfair,” Sorich said. “Insurers provide premium discount to customers who agree to have their vehicles repaired at body shops recommended by the insurer. The new regulation would allow the policyholder to receive the discount and then ignore the cost saving feature that supported the deduction.”

Topics California Carriers Legislation Claims