GEICO entered the Massachusetts marketplace in 2009
GEICO first entered the Massachusetts automobile insurance marketplace in 2008 after the Commonwealth’s transition to Managed Competition. This year also marked the first for the insurer’s availability in all 50 states. As of 2014, the insurer is the seventh largest writer of private passenger automobile insurance in Massachusetts.
Earlier this year, however, the Massachusetts Division of Insurance announced that it had fined the insurer $275,000 for “…inconsistencies in the reporting of accident information to both state agencies and policyholders.” The settlement agreement came in response to a Market Conduct Examination that the Division of Insurance undertook of the insurer this year.
What the Comprehensive Market Conduct Examination Found
The report, which examined the direct writer during the time period of January 1, 2011 through December 31, 2011, analyzed not only the processes and procedures of the company but also the insurer’s related internal controls. As explained below, any finding by the examiners is considered to be a violation of Massachusetts law.
The Division considers a “finding” to be a violation of Massachusetts insurance laws, regulations or bulletins. An “observation” along with a recommendation is considered a departure from an industry best practice. The Division recommends that Company management evaluate any “finding” or “observation” for applicability to other jurisdictions. All unacceptable or non-compliant practices may not have been discovered or noted in this report. Failure to identify unacceptable or non-compliant business practices does not constitute acceptance of such practices. When applicable, corrective actions should be taken in all jurisdictions. The Company shall report to the Division any such corrective actions taken
In the GEICO report, the findings against the company were primarily with respect to the insurer’s complaint handling process. Aside from that the report noted that overall GEICO’s policies and procedures were in compliance with Massachusetts law. In fact, the examiners noted that a majority of the Company’s practices met with best practices in those particular areas.
The examination resulted in no recommendations or required actions with regard to company operations/management, marketing and sales, producer licensing, policyholder service or claims. The examination indicated that the Company is in compliance with all tested Company policies, procedures and statutory requirements addressed in the examination. Further, the tested Company practices appear to meet industry best practices in these areas.
Why GEICO was fined by the Division of Insurance
GEICO’s failure to properly handle complaints was the major reason the insurer was fined by the Division of Insurance. Here is what the report stated on that fact:
The Company’s complaint log appears complete except for five complaints that were not properly included on the complaint logs in violation of M.G.L. c. 176D, § 3(10). One additional complaint was included on another state’s complaint log in error.
As a result of these findings, the insurer must take the following actions
The Company shall ensure that complaint logs include all Division complaints. The Company shall complete a reconciliation of its complaint logs with the Division’s records as of June 30, 2014, or another mutually agreed upon date, to ensure that both sets of complaint data are accurate and complete. Also, the Company shall implement control procedures and related training to staff to ensure that all complaints are properly included on the Company’s complaint logs. Finally, the Company shall conduct an independent assessment of the complaint handling function to ensure that complaint registers are accurate and complete and provide the report of assessment to the Division by September 30, 2014, or another mutually agreed upon date.
GEICO’s Financials For Massachusetts
As part of the Comprehensive Market Conduct Examination, the Division of Insurance also discussed GEICO’s financials for Massachusetts. The company which began in 1936, was acquired by Berkshire Hathaway in 1996 and is now the second largest private passenger automobile insurance writer in the nation and the seventh largest in Massachusetts.
Here is an excerpt from the Division of Insurance’s report outlining the direct writer’s financials for its Massachusetts business:
The Company maintains a financial strength rating of A++ (Superior) from A.M. Best. The following financial information is as of, or for the year ended December 31, 2011:
Government Employees Insurance Company
Admitted assets $17.0 billion
Statutory surplus $6.1 billion
Direct written premium $4.4 billion
Massachusetts business – direct written premium $95.0 million
GEICO General Insurance Company
Admitted assets $180.3 million
Statutory surplus $105.7 million
Direct written premium $6.2 billion
Massachusetts business – direct written premium $16.5 million