State Auditor Bump published the results of an audit of the Massachusetts Division of Insurance in late August
In a ten-page report outlining the results of its 2019 audit of the Massachusetts Division of Insurance, State Auditor Suzanne Bump called on the Division to end its unauthorized billing practices. The audit, the results of which were published on August 21, 2019, examined the performance of the DOI during the period of July 1, 2016 through June 30, 2018. In particular, it reviewed how the Division administered its operations assessment process and its market conduct analysis of Massachusetts licensed insurers.
“As the Commonwealth’s chief insurance regulator, the Division of Insurance must act fairly and transparently in its assessments of insurers. By exempting some businesses from paying this fee, DOI has created an uneven playing field that forces some businesses to shoulder more than their fair share of this assessment,” Bump said of the audit. “The agency should put an end to this billing practice.”
Specifically, the audit revealed that DOI engages in a practice exempting certain insurers from paying their required annual fee. State Auditor Bump argued in her report that the practice results in remaining insurers being over-billed for the fee. Under state law, the DOI must assess an annual fee on all insurers operating within the Commonwealth. This fee is used to support the agency’s operating expenses and permits the DOI to collect upwards of $2 million annually via this fee. The audit results showed that during the fiscal years 2014 to 2018, the DOI did not collect an assessment from 62 insurers, thereby over-billing other insurance companies who operate within the Commonwealth by $857,306.
It is important to note that the audit of the DOI also included a look at the Division’s administration and execution of its market conduct analysis. These examinations review how insurers interact with their customers and policyholders in order to ensure that an insurer’s clients are being treated fairly and pursuant to all state laws and regulations. The audit found no fault or deficiencies with respect to the Division’s practices in this area.
The State Auditor’s Findings & Recommendations
The following is what the State Auditor determined and what it recommended after conducting an audit
- During fiscal year 2018, DOI had 123 employees and received $13.3 million in state appropriations. As of April 2018, there were approximately 1,600 insurers licensed, authorized, or eligible to conduct business in the state.
- Finding 1: DOI did not bill insurers for $857,306 in operations assessments.
- 1. DOI should discontinue its practice of excluding some insurers from annual operations assessments and notify insurers that have traditionally been exempt from these assessments that they will no longer be exempt.
- 2. DOI should work with insurers that were over-billed for operations assessments to determine whether any restitution is necessary.
The Division of Insurance’s response
In a response to the State Auditor’s finding, Division of Insurance officials noted that it acted pursuant to a “maxed-out” policy that the agency had in place. This policy excludes some insurers from paying the annual fee due to the fact that these companies already had paid other insurer assessments “…in excess of what would be its annual operations assessment.”
As the audit report noted, however, since the DOI does not have the statutory authority to exempt certain insurance companies from paying this fee as the “maxed-out” policy and this policy is not included in the DOI’s policies and procedures it should be discontinued.
In response, the Division of Insurance said that it will begin to takes steps to end the practice.
For those interested in receiving a copy of the audit report, please send your request via our Contact Us form.