DEPARTMENT OF INSURANCE

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DEPARTMENT OF INSURANCE
Market Examination Administration
08/14/2003
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Related LawsA.R.S. 20-159
Arizona Department of Insurance

• Establishes Insurance Examiners
• Revolving Fund to pay examination
• expenses authorized by A.R.S.
• 20-156 and to compensate
• independent contractor examiners
• authorized by A.R.S. 20-148.

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Related LawsA.R.S. 20-156
Arizona Department of Insurance

• The Director shall examine the
• affairs, transactions, accounts,
• records and assets of each
• authorized insurer as often as the
• director deems advisable.

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Related LawsA.R.S. 20-148
Arizona Department of Insurance

• The Director may from time to time
• contract for and procure, on a fee or
• part-time basis, or both, such
• actuarial, technical and other
• professional services as he may
• require for the operation of his office.

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Related Laws Articles of A.R.S. Title 20
Referring to IERF
Arizona Department of Insurance

• Chapter 1, Article 2. Administrative Officers and
  Procedures
  
• Chapter 2, Article 4. Rates and Rating
  Organizations
  
• Chapter 2, Article 4.1. Open Competition Rates
  and Rating Organizations
  

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Related Laws Articles of A.R.S. Title 20
Referring to IERF
Arizona Department of Insurance

• Chapter 2, Article 4.2. Compliance with Filed
  Rates
  
• Chapter 2, Article 8. Insurance Holding Company
  Systems
  
• Chapter 2, Article 12. Risk-based Capital for
  Insurers

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Related Laws Articles of A.R.S. Title 20
Referring to IERF
Arizona Department of Insurance

• Chapter 2, Article 14. Enforcement of Insurance
  Policies Affecting Certain Holocaust Victims
  
• Chapter 3, Article 8. Actuarial Opinion and
  Memorandum Requirements
  
• Chapter 4, Article 1. Domestic Stock and Mutual
  Insurers
  

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Related Laws Articles of A.R.S. Title 20
Referring to IERF
Arizona Department of Insurance

• Chapter 4, Article 3. Hospital, Medical, Dental
  and Optometric Service Corporations
  
• Chapter 4, Article 4. Fraternal Benefit
  Societies
  
• Chapter 4, Article 7. Prepaid Dental Plan
  Organizations

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Related Laws Articles of A.R.S. Title 20
Referring to IERF
Arizona Department of Insurance

• Chapter 4, Article 9. Health Care Services
  Organizations
  
• Chapter 4, Article 14. Captive Insurers
• Chapter 6, Article 4. Disability Insurance

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Related Laws Articles of A.R.S. Title 20
Referring to IERF
Arizona Department of Insurance

• Chapter 6, Article 8.1. Mortgage Guaranty
  Insurance
  
• Chapter 6, Article 9. Title Insurers
• Chapter 6, Article 10.1. Credit Property
  Insurance
  
• Chapter 6, Article 11. Cancellation or
  Non-renewal of Automobile Insurance

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Related Laws Articles of A.R.S. Title 20
Referring to IERF
Arizona Department of Insurance

• Chapter 8 (Life Care Contracts), Article 1.
  General Provisions
  
• Chapter 11 (Insurance Information and Privacy
  Protection), Article 1. General Provisions
  
• Chapter 12 (Joint Underwriting Associations),
  Article 1. General Provisions
  

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Related Laws Articles of A.R.S. Title 20
Referring to IERF
Arizona Department of Insurance

• Chapter 13 (Accountable Health Plans), Article 1.
  General Provisions
  

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Market Oversight Modernization
Arizona Department of Insurance

• Goals and Objectives
• Emphasize market analysis
• Risk assessment
• Range of approaches and resolutions
• Efficient/cost-effective

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Market Oversight Modernization
Arizona Department of Insurance

• National issues
• Modernization
• Multi-state coordination
• NAIC, NCOIL, GAO studies and discussions

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ADOI Improvements
Arizona Department of Insurance

• Updated Approach - 1999
• Fresh targets only
• Risk assessment and budget
• Complete process within 12 months of exit
• Limited number of exams
• One-year exam period

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ADOI Improvements
Arizona Department of Insurance

• Market Oversight Division - 2003
• Investigations, Examinations, Analysis
• Supports goals and objectives

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Examination Personnel
Arizona Department of Insurance

• Analysts
• Examiners (competitively procured)
• Administrators and Supervisors
• Support and Administrative Staffers

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Contractor Procurement
Arizona Department of Insurance

• ADOI and State Procurement Office (SPO) develop
  RFP
  
• Vendors submit proposals.
• SPO awards contracts
• ADOI is limited to contractors and rates approved
  by SPO

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Market Analysis Targeting
Arizona Department of Insurance

• Market conduct examinations are conducted on a
  targeted basis only
  
• Insurers identified as potential targets through
  monitoring and review of multiple resources and
  factors

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MOD Analysis Section
Arizona Department of Insurance

• Gathers and analyzes information to
• identify insurers who may pose a
• threat to Arizona consumers

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Data Reviewed by the Analysis Section
Arizona Department of Insurance
Typically

• Mergers/acquisitions
• Top 25 insurers
• Market share changes
• RIRS, ETS, SAD reports/communications from other
  states
  

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Data Reviewed by the Analysis Section
Arizona Department of Insurance

• Periodicals and other industry related
  publications
  
• Insurer or producer marketing and sales Internet
  activity
  
• Communications/referrals from other divisions
• Prior examinations

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Data Reviewed by the Analysis Section
Arizona Department of Insurance

• Financial analysis (IRIS or RBC anomalies, TCASA
  profiles, comments from Financial Affairs
  analysts)

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Data Reviewed by the Analysis Section
Arizona Department of Insurance

• Specific trends and analysis reports produced
  annually
  
• L D and P C Complaint Ratios
• Report of Significant Premium Changes
• Insurers New to Personal Lines

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Market Analysis Results
Arizona Department of Insurance

• Insurers identified for further research
• Market Oversight Administrator submits proposed
  targets to Deputy Director for approval

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Examination Target Approval Process
Arizona Department of Insurance

• Disapproved targets terminated or returned to
  Analysis Section for further research
  
• Approved targets must have examination called
  within one year or target approval expires

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Pre-examination Functions
Arizona Department of Insurance

• Examinations Supervisor creates examination plan
  and cost projection
  
• Examinations Supervisor and MOA charge
  examination team
  
• Send Call Letter to Company

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Pre-examination Functions
Arizona Department of Insurance

• Enter company information into ETS Database
• Data, interrogatories, and procedures are
  requested/reviewed
  
• Make determination whether on-site examination
  necessary

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Field Examinations
Arizona Department of Insurance

• Entrance meeting
• On-site policy and claim file audit
• Criticism issuance and discussion
• Exit meeting

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Post-examination Functions
Arizona Department of Insurance

• MOD prepares draft examination report
• Draft report sent to company for comment
• MOD reviews company comments and finalizes report

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Resolution Process
Arizona Department of Insurance

• MOD submits report and proposed resolution to
  Deputy Director for approval
  
• Examination Supervisor follows procedures for
• Consent Order
• Letter Agreement
• Filed-As-Is

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Resolution Process
Arizona Department of Insurance

• MOD provides proposed resolution document to
  company
  
• Negotiations may be necessary
• DOI may initiate contested proceeding if no
  negotiated resolution

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Enforcement Process
Arizona Department of Insurance

• MOD sends letter to company representative that
  details requirements of resolution document
  
• Specific Deadlines for action plans
• Payments to be made
• Other compliance issues
• Compliance verified and a closing letter is sent
  to the company.

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Examination Costs
Arizona Department of Insurance

• Examiner fees
• Examiner expenses
• Lodging allowance GSA Lodging Maximum Rate.
• Living expense allowance (meals, private vehicle
  mileage, parking, tips, tolls, telephone calls,
  etc.) 150 of GSA MI Rate.

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Examination Costs
Arizona Department of Insurance

• Airfare
• Examiner travel to exam site by private vehicle
  (10 / 50 mi.) in lieu of airfare
  
• Rental car expenses or other ground
  transportation
  
• Cost to ship exam work-papers and exam report

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Administrative Overhead
Arizona Department of Insurance

• Pays for common, unallocated examination costs,
  such as
  
• Analysis and exam targeting
• Exam coordination and oversight
• Administrative support
• General operating expenditures

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Administrative Overhead
Arizona Department of Insurance

• Overhead factor was increased from 15 to 30 in
  June 2000 to enable the Department to replace
  contractor analyst services with employee
  analysts.

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Arizona Department of Insurance
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Administrative Overhead
Arizona Department of Insurance

• At least 18 other states recoup exam-related
  unallocated administrative costs from examinees
  
• Insurer assessments
• Fixed charge per day or hour for each examiner
• Invoices for non-recouped costs
• Overhead factors (5 - 50)

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Examiner Billing Process
Arizona Department of Insurance
Step 1
Examiner completes timesheet and has it signed by
examinee representative.
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Examiner Billing Process
Arizona Department of Insurance
Step 2
Examiner completes billing statement and submits
it to a Department of Insurance Exam
Coordinator.

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Examiner Billing Process
Arizona Department of Insurance
Step 3
Exam Coordinator reviews examiners bill and
forwards to Examination Accountant.

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Examiner Billing Process
Arizona Department of Insurance
Step 4
Examination Accountant reviews examiners bill.
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Examiner Billing Process
Arizona Department of Insurance
Step 5
Examination Accountant enters data into IERF
Accounting System which generates voucher listing
and examinee invoices.

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Examiner Billing Process
Arizona Department of Insurance
Descriptions of information elements on our
invoices is available from the COMPANY portal of
the Department of Insurance web site--
www.id.state.az.us
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Examiner Billing Process
Arizona Department of Insurance
Step 6
Examination Accountant enters data from
transmittal document into Arizona Financial
Information System, which produces payments to
examiners.
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Examiner Billing Process
Arizona Department of Insurance
Step 7
Examination Accountant follows up on receivables
and answers examinee invoice-related questions.

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Examinations and Analysis Program Web Page
Arizona Department of Insurance

• Includes
• general information
• descriptions of examination charges and invoice
  terminology
  
• tips to help us deliver an efficient exam.
• Demonstration

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How to Minimize Examination Costs
Arizona Department of Insurance

• Provide information promptly to the ADOI. If we
  cant analyze, we may have to examine.
  
• Prepare information requested prior to the
  commencement of the exam.
  
• Promptly respond to questions and make records
  readily accessible to our examiners.

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Additional Protection for Examinees
Arizona Department of Insurance

• Regulatory inspection requirements,A.R.S.
  41-1009
  
• State purpose and legal basis
• Disclose fees
• Notice of rights
• Status reports during inspection
• Report of deficiencies

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Additional Protection for Examinees
Arizona Department of Insurance

• Ombudsman - Citizens Aide, A.R.S. 41-1371, et
  seq.
  
• Independent investigation of complaints that
  agency actions are contrary to law, unfair,
  inefficient, discourteous
  
• Investigative powers
• Protects confidentiality of complainants and
  witnesses

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Additional Protection for Examinees
Arizona Department of Insurance

• Presents recommendations to agency
• Presents recommendations to governor,
  legislature, prosecuting agencies, public
  
• Independent hearing of appealable agency
  actions, A.R.S. 41-1092
  
• Administrative hearing at OAH
• Appeal to Superior Court

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Recent Accomplishments
Arizona Department of Insurance

• Improved invoices
• E A web page
• Replacement of contractors with employee
  analysts
  
• Eliminated examinee billings for certain
  analytical activities

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Recent Accomplishments
Arizona Department of Insurance

• New examiner contracts
• No longer pay premium rate to examiners who work
  outside Arizona
  
• No longer pay airfare or travel time except upon
  commencement and completion of exam.

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Planned Improvements
Arizona Department of Insurance

• Continue market oversight modernization
• Employee examiners
• Enhance pre-examination disclosure of information
  concerning examination plans and projected costs

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Planned Improvements
Arizona Department of Insurance

• Eliminate examinee responsibility for examiner
  timesheet approval
  
• Bi-weekly examiner payment and examinee invoice
• Further enhance invoice detail
• Formal invoice inquiry process
• Electronic invoicing

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Open Forum...
Arizona Department of Insurance