THE MISSISSIPPI LEGISLATURE

PEER sought to determine the effectiveness of the Mississippi Insurance Department (MID) in protecting the public from the principal risks associated with operation of the state’s insurance industry. PEER sought to determine if the department adequately:

• protects the public from the consequences of insurance company insolvencies;
• ensures that rates charged by insurance companies are not excessive, inadequate, or unfairly discriminatory; and,
• protects consumers from misconduct by insurance companies or their agents.

PEER found that MID, through its regulatory efforts, provides the public with reasonable protection against insurance company insolvencies. However, the department did not submit 59% of 1998 property and casualty rate filings for actuarial review to ensure that such rates were not excessive, inadequate, or unfairly discriminatory. MID also does not strictly enforce licensing requirements, use all available means to detect misconduct, or educate the public to recognize and report misconduct.

MID seeks to avoid insolvencies by:

• obtaining evidence of the financial stability of insurance companies and HMOs before allowing them to conduct business in Mississippi;
• using National Association of Insurance Commissioners standards to conduct ongoing financial examinations of insurers in order to detect impaired or hazardous financial conditions and using financial indicators to identify HMOs which merit extra regulatory attention; and,
• managing financially impaired companies back to stable financial condition.

Further, the state seeks to ensure payment of consumers’ claims against insolvent insurers via guaranty associations. State law establishes maximum amounts which the guaranty associations can pay per policy.

Actuarial review is necessary to determine whether property and casualty rates are excessive, inadequate, or unfairly discriminatory. In 1998, of the 654 rate requests which required actuarial review to ensure that those rates met the legal standard of not being "excessive, inadequate, or unfairly discriminatory," MID submitted only 268 (41%) to the actuary for review.

MID has no legal authority to regulate life, health and accident insurance rates except in the areas of Medicare supplements, long-term care policies, HMOs, credit life, and credit accident and health. MID has assumed authority, via its regulatory responsibilities, to limit annual increases of existing programs to 25%. However, this policy is not derived from any specific grant of legislative authority and MID personnel expressed concern over the department’s legal authority if this policy were challenged in court.

The purpose of licensing insurance agents, a responsibility of MID, is to provide basic assurance that agents are competent and trustworthy. State statutes require licensing exams, background checks, and pre-licensure and continuing education training as components of the licensing process.

MID does not use agent licensure test results obtained directly from testing companies to determine licensing exam scores independently, even though this is the only way to ensure score accuracy. Instead, MID relies on self-reporting of the licensing examination score by prospective licensees.

Also, while state law requires insurance companies to investigate the "character and record" of persons applying to act as their agents, MID has not prescribed the content of such investigations. As a result, there is no uniformity in the types of background checks performed by insurance companies and there is no assurance that checks which they do perform ensure that insurance agents meet qualifications established in state and federal law.

Concerning educational requirements for agents, House Bill 1243, passed during the 1999 regular session and effective July 1, 2000, sets uniform educational requirements for insurance agents and requires documentation of compliance with these requirements. This should correct the lack of documentation which currently exists with respect to education of life, health, and accident agents and the inconsistencies in educational requirements which currently exist between lines of insurance.

After agents are licensed, MID’s primary method of detecting agent and company misconduct is through complaints from consumers and the industry. While the department contends that it informally monitors complaint activity and makes necessary referrals to the legal staff and/or commissioner for further action, the department does not maintain adequate records of consumer and industry complaints to ensure that it addresses all complaints, nor does it have a formal system for analyzing the complaints for purposes of identifying patterns of misconduct. Implementation of a formal system for analyzing complaint data for information such as frequency of types of misconduct and violators would assist MID in targeting both its regulatory and educational efforts.

When MID detects violations of insurance laws and regulations, it exercises its regulatory authority by imposing penalties against agents or companies. During 1998, MID took disciplinary action against fifteen agents, including revoking three agents’ licenses. During the last three fiscal years, MID levied fines totaling $802,900 against fifty-four companies.

Educating consumers as to the risks and hazards associated with the insurance industry is critical to effective regulation. Educated consumers protect themselves and can also protect other consumers by recognizing misconduct and reporting it to the state’s insurance regulatory agency. MID’s education program consists of responding to requests for information through a toll-free telephone number, distributing informational brochures, providing lectures on insurance topics to consumer groups, and participating in the Mississippi Insurance Counseling and Assistance Program. A national consumer advocacy group found that MID’s informational brochures did not educate consumers about the risks and hazards of the insurance industry.

1. In order to ensure that it properly analyzes and acts on all property and casualty insurance rate, rule, and form filings, the Insurance Department should establish formal, written procedures governing handling of the filings. These formal procedures should cover:
   1. documentation of receipt of every filing;
      
   2. classification of every filing, according to the type of analysis necessary (if any) to act properly on the filing. For example, some "rate" filings are merely filings to correct a typographical error and therefore do not require analysis prior to approval; other filings may only require in-house review, while true rate filings require actuarial review.
      
   3. submission of every filing to the proper level of review and review of each filing according to written criteria. For example, in order to comply with state law (which requires that property and casualty insurance rates not be excessive, inadequate, or unfairly discriminatory) and to ensure a competitive insurance market with broad consumer access, MID should submit all true property and casualty insurance rate filings to actuarial review.
      
   4. documentation of the disposition of every filing (approved or disapproved), including documentation of analysis, methodology, and material assumptions made in arriving at the decision.
      
   
   

   Further, in order to provide greater assurance that the department follows its own procedures, MID should use existing resources to develop a computer database which documents compliance with all of the major provisions for handling of rate, rule, and form filings laid out in formal procedures. At a minimum, the department’s computer database should contain the following information on each filing: the date of receipt, name of company submitting the filing, the type of filing, entity performing the analysis of the filing, the final disposition (approval or disapproval and brief description of reason for action taken), and the date of the disposition. Also, the computer database should tie to any supporting hard copy files, such as correspondence with MID’s consulting actuary. MID should also use the database to make sure that its analysis of filings takes place within the thirty-day limit established in MISS. CODE ANN. Section 83-2-7 (1972); otherwise, the filing could be deemed to be automatically approved even if the filing has not been properly analyzed.

2. In order to establish clearly the department’s legal authority to regulate life, health, and accident insurance rates in areas not already authorized by state law and to give the department a firm position should its authority to regulate life, health, and accident rates in areas outside of current legal authorization be challenged in a court of law, the Commissioner of Insurance should develop recommendations for the Legislature regarding changes in state statutes. The recommendations should include appropriate language addressing the role which MID should take relative to life, health, and accident insurance rate requests; for example, language and definitions similar to those found in MISS. CODE ANN. Sections 83-2-3 and 83-2-7 governing property and casualty rates might be appropriate. Further, MID should recommend that the Legislature amend MISS. CODE ANN. Section 83-41-331 (1972), which requires MID to review HMO rate requests prior to approval, to include definitions of "excessive," "inadequate," and "unfairly discriminatory."

3. Given the importance of agent licensing requirements in assuring that agents are competent and trustworthy to sell the products which they offer to the public, MID should correct deficiencies in its agent licensing procedures by:
   1. verifying each applicant’s passage of the licensing examination by utilizing test scores provided directly to MID by the testing services, rather than using scores submitted to MID by license applicants. Further, the Commissioner should not grant a license to any applicant who is unable to pass the licensing examination at the minimum validated passing score;
   2. ensuring that license applicants’ files contain all necessary documentation of applicants’ compliance with state law and departmental regulations prior to the department issuing a license to the applicant (e.g., a letter certifying that an out-of-state applicant for a license in Mississippi has complied with all qualifications for licensure in the applicant’s state of residence; documentation of compliance with pre-licensure and continuing educational requirements); and,
   3. developing the elements of a background check necessary to certify that an applicant is of good moral character, is trustworthy and complies with all other background requirements set forth in state or federal law or regulations, including verifying whether an applicant has ever been convicted of a criminal felony. Also, MID should require that the insurance company seeking to hire a new agent submit a copy of the legally required background check on the agent directly to MID prior to MID’s licensing the applicant.
   
   
4. In order to ensure that it is addressing all consumer and industry complaints on a timely basis, MID should ensure that its complaint database is accurate (e.g., includes all complaints, the date of the complaint, nature of the complaint, agent and company against which the complaint is lodged, analyst assigned to handle the complaint, date and nature of final disposition, amount of settlement attributable to MID’s intervention) and up-to-date and should be programmed to flag complaints which remain open longer than the average for each category of complaint. Further, MID should analyze its complaint data, including identifying patterns of misconduct among agents and companies, in order to direct its regulatory efforts to areas of greatest risk. One example of how MID could analyze complaint data would be to determine complaint index ratios (see discussion on page 29).

5. MID should explore all cost-effective methods for proactively uncovering and addressing cases of agent and company misconduct.

6. To deter insurance companies’ use of unlicensed and/or uncertified agents, the Legislature should amend MISS. CODE ANN. Section 83-17-11 to authorize the commissioner to fine the company, the agent, or both, for use of unlicensed and/or uncertified agents $500 for each policy or transaction sold or negotiated by the unlicensed or uncertified agent.

7. Because the products offered to consumers by insurance companies are complicated, frequently changing, often expensive, and critical to the consumer in terms of the claimed protection which they provide, MID should develop a formal public service program designed to educate the public to recognize industry risks, dangers, and warning signs and to report insurance industry misconduct.

   Further, the Commissioner of Insurance should include a summary of the department’s handling of complaints in its annual report. Sorting complaint data by NAIC categories, this summary should include:

   • complaints received by type of complaint;
   • disposition of these complaints; and,
   • total dollar amounts collected on behalf of consumers and total dollar amount of collections attributable to MID’s intervention (see discussion on page 29).