A proposed change in Utah's insurance rules, which would make it easier for regulators to penalize violators, drew criticism from industry officials this week.
During a public hearing Tuesday on several proposed changes in the Unfair Claims Practices rule, critics said Utah's attempt to change the standard for judging whether a company has violated the rule is unprecedented."This is of most concern. No other states have done this," said Ed Zimmerman, counsel for the American Council of Life Insurance.
Complaints were also heard about proposed changes in deadlines for companies to pay claims or else be in violation of the unfair claims rule, but most concern was voiced over changing judgment standards from general business practices to negligence.
The rule currently reads that if it is violated "knowingly or with such frequency as to indicate a general business practice (the violation) will be considered to constitute unfair claims settlement practices."
The proposed change would read that if the rule is violated "willfully or negligently, (it) will constitute unfair claims settlement practices."
Violations of the rule typically involve a carrier not paying a claim on time, resulting in a consumer being hounded by collection agencies. If a carrier is found in violation of the rule he could be fined or have his license suspended or revoked.
Insurance agents and attorneys joined Zimmerman in saying the proposed standard could expose a carrier to penalties for an inadvertent clerical error.
But regulators at the Utah State Insurance Department don't buy that complaint.
"That's ridiculous. It's nothing but a red herring," said Len Stillman, staff counsel for the department's market conduct division.
Stillman, who conducted the hearing, said regulators would thoroughly investigate any complaints of wrongdoing and not revoke a carrier's license for an accidental clerical error.
He explained that under the current standard investigators must establish a considerable record of similar violations to prove an insurance company breaks rules as a standard business practice. With the change to a negligence standard, discipling violators will be less burdensome.
"It's extremely difficult if not impossible to prosecute a case under the general business practices standard," he said.
Industry officials also complained that enforcing a 30-day deadline to settle claims is not practical. Several representatives said some cases take longer than 30 days to investigate and discover causes and liability.
Regulators said they recognized that problem and will change language in the proposed rule to indicate the deadlines apply after a claim is fully investigated.
Stillman said the changes are part of the department's mandate to revamp Utah's insurance regulations and that the proposed substitutions were prompted by a "vast number of complaints the department has received in the past year."
To Stillman's dismay only two consumers attended Tuesday's four-hour hearing, recalling frustrations over health care claims taking up to eight months for insurers to settle, and voicing support for the 30-day settlement limit.
"I'm very disappointed we didn't get more input from the public," Stillman said.
Deadline for submitting written comments on the rule changes is Sept. 9.