6/D.1 - AR Unfair Trade Practices

Question 1

AR Unfair Competition and Unfair or Deceptive Trade Practices

Answer 1

AR prohibits the following unfair or deceptive trade practices:

1. Boycott, coercion, and intimidation
2. “Churning of business”
3. Defamation
4. Failure to maintain complaint handling procedures
5. Failure to maintain conflict of interest procedures
6. False information and advertising
7. False statements and entries
8. Misrepresentation and false advertising
9. Failure to comply with policy cancellation procedures
10. Offering Rebates
11. Offering stocks and/or contracts to obtain business
12. Underwriting or refusing certain risks
13. Unfair discrimination
14. Unfair financial planning practices
15. Committing unfair claims settlement practices

Question 2

Unfair Claims Settlement Practices

Answer 2

The following is a list of unfair claims settlement practices in AR:

1. Misrepresenting facts or policy provisions in order to reduce the dollar amount of a claim settlement
2. Failure to promptly acknowledge claims in a reasonable time frame
3. Failure to implement standards for prompt claims investigation
4. Failing to affirm or deny coverage of a claim within a reasonable time
5. Failing to make prompt, fair, and equitable settlements for claims in which liability has become reasonably clear
6. Trying to settle a claim using an application that was altered without insured’s knowledge or consent
7. Making claims payments without explaining the coverage providing for them
8. Delaying the settlement process by requiring both a preliminary claim report and formal proof of loss forms
9. Failing to explain promptly and thoroughly why the insurer denied a claim or offered a compromise settlement
10. Compelling insureds into litigation by offering substantially less than the proper amount of damages
11. Attempting to settle claims for less than what a reasonable person would expect based on advertisements made in applications
12. Attempting to compel claimants to accept a settlement that is less than the amount awarded in arbitration, by telling them that the insurer has a policy of appealing arbitration awards
13. Refusing to settle claims promptly under one part of the policy in order to influence settlement or compromise under another
14. Requiring repairs to be made by a specific contractor

Question 3

Miscellaneous Prohibited Practices

Answer 3

Other prohibited activities include:

• Misrepresentation or False Claims: Every person involved in the claims process must be honest and forthright about the facts and circumstances surrounding the claim. Any person who submits a fraudulent claim, offers false or fraudulent documents or info in support of a claim, or knowingly conceals, withholds, or misrepresents information pertaining to a claim can be prosecuted under the law.
• Fictitious Groups: An insurer may not group together a fictitious business, firm or association of individuals so that it can offer them a discounted policy, premium, or rate
• Misrepresentation in Applications for Insurance: Any person who makes false or fraudulent statements on an insurance application can be prosecuted under the law. This includes agents, solicitors, physicians, brokers, and applicants.
• Illegal Premiums: The insurer may never attempt to collect or require additional premium payments beyond what is listed in the contract
• Claims and Loss Histories: A vendor of loss history information should not charge the insured for any disclosure or report if the insured requests it within 30 days of receiving a notice of declination, cancellation, nonrenewal, or coverage reduction. Otherwise the vendor may charge a fee for disclosing the information. this only applies to personal property and casualty insurance lines.

Cancellation by Third Parties: Any third party that has the right to cancel an insurance policy must sent written notice to the insured, and the insured’s agent or broker, at least 10 days prior to cancellation. The cancellation is not considered valid unless the third party abides by this rule.

Method of Payment: All claim settlement payments in AR must be issued by check, draft or electronic transfer. Payments must be from the insurer and should only be made to the claimant.

Question 4

Examination by the Commissioner

Answer 4

The Commissioner has the power to:

• Examine an insurer’s claim files at any time
• Examine and investigate insurance professionals to determine whether they have engaged in prohibited practices
• Call for a hearing if he suspects that someone has committed unfair practices

Fines for Unfair Acts and Prohibited Practices

• Up to $1000 per violation, up to $10,000 total
• If the person knew she was in violation; up to $5000 per violation, but not more than $50,000 total

Question 5

Deadlines for Handling Claims

Answer 5

• Acknowledge a claim: Within 15 days of receiving notice of claim
• Provide proof of loss forms: Within 20 days of the loss being reported
• Respond to any injuries by the claimant: Within 15 business days
• Respond to any inquiries by the AR Department of Insurance: Within 15 business days
• Complete the investigation: Within 45 days of receiving notice of claim
• Accept or deny a claim: Within 15 days of receiving proof of loss
• Notify the claimant if the insurer needs more time to complete investigation: Every 45 days following
• Notify a first-party claimant about a statute of limitations: 30 days before it expires
• Notify a third-party claimant about a statute of limitations: 60 days before it expires

Question 6

Standards Applicable to Private Passenger Automobile Insurance

Answer 6

Replacement Vehicle - The insurer may offer the claimant a specific vehicle that is comparable to the totaled car in type and quality

Actual Cash Value - The insurer may choose to make a cash settlement offer that is based on the actual cost to purchase a comparable car, minus any deductible

Question 7

Claim Settlement Standards for Automobile

Answer 7

Settling Auto Claims

• When liability and damages are reasonably clear in a third-party claim, the liability insurer cannot try to avoid paying by advising the claimant to file with his own insurance policy
• The insurer cannot require a claimant to use a specific repair shop as a condition of settlement
• The insurer may not require a claimant to travel an unreasonable distance to:
  a. inspect a replacement vehicle
  b. get a repair estimate
  c. have his car repaired at a specific repair shop
• If the insurer chooses to repair the damaged car, the claimant must agree on which repair shop to use. After the claimant gives his consent, the insurer must make sure the chosen repair shop fully repairs the damaged car to its pre-accident condition at no additional cost to the claimant, and within a reasonable time frame
• The insurer’s repair estimate must be for the reasonable amount it will take for the car to be satisfactorily repaired to its pre-accident condition
• The insurer should give the claimant a copy of the estimate and may recommend one or more repair shops
• The insurer should document any deductions it makes for betterment or appreciation in the claim file. The deductions should be itemized, appropriate, and listed with a specific dollar amount.