As a law firm whose sole focus is representing policyholders in insurance disputes, we spend a lot of time making claims that insurance companies are engaging in bad faith and fighting tooth and nail for evidence to prove this. We get what information we can through the discovery process, the rules and logistics of which can vary drastically by state, court, and even judge. Discovery must be tailored to each individual case, and insurers always resist requests for information about broader business practices or systems that are too vague, too broad, too burdensome or irrelevant. This could make it a long and costly battle to get hold of evidence of bad faith practices that we already know are going on.
Thankfully, discovery is not the only process by which bad faith or illegal insurance practices can be uncovered. State insurance departments and regulators may also investigate the business practices of insurance companies through market surveys to ensure that companies operating in the state are complying with the law. The importance of market conduct tests has been discussed on this blog before. In April 2022, Mr. Merlin a post on five market behavior tests conducted in Louisiana focusing on the behavior of several insurance companies in handling claims from Hurricanes Laura, Delta and Zeta. Mr. Merlin noted that the tests “found 44 instances of improper activities and/or business practices inconsistent with the Louisiana Insurance Code.”; The Louisiana Insurance Commissioner proposed nearly a million dollars in fines based on the investigation results. Two other posts (here and here) by Mr. Merlin summarizes a similar situation in North Dakota, where a market investigation into Farmers’ “Bring Back a Billion Program” and claims management resulted in $750,000 in fines for violating state law. He also explains Insurance Regulatory Examiners Societys mission, which is to protect consumers and preserve a robust, competitive marketplace through “fair, firm, [and] honest insurance regulation.”
The laws, regulations, and procedures governing market behavior tests vary by state. In Oklahoma, where I live, the state legislature requires insurance companies to “submit annually to the Insurance Commissioner market performance statements reporting market performance data for insurance companies.” 36 OK Stat § 36-311.4(A) (2022). Failure to do so may result in a $1,000 fine. The Insurance Department has also issued rules requiring insurers to provide an annual corporate governance disclosure, which includes information about the company’s governance framework, performance evaluation and compensation practices, and risk assessment processes. Okay. Administrative Code § 365:25-7-91. Using these reports and other metrics such as financial statements or complaints, the insurance commissioner has full discretion to determine “whether a market investigation or investigation of an insurer should be conducted.” 36 OK Stat § 36-311.4(B)(1)(F)(2022).
The Oklahoma Insurance Department website notes that it “performs[s] and publish[es] Market research.” However, the most recent published report is from May 2009 (which found that Farmers made various mishandling errors and violated Oklahoma law). After I reached out to ask where the rest of the investigation reports were, OID informed me if market conduct investigations are available when I submit a FOIA request. This is easier said than done because market conduct tests are at the commissioner’s discretion, and I was unable to find any list or notice of which insurers have been audited or when these examinations occurred. I have since submitted a FOIA request for a list of all investigations conducted by OID since 2009 and am waiting to hear back – I will keep you all updated.
Admittedly, I am a bit skeptical about the reliability of the commissioner deciding an exam is justified based on the companies’ self-reporting. From what I’ve seen of discovery disputes, insurers are reluctant to tell about themselves. Ideally, other metrics, such as an increase in consumer complaints or an increase in lawsuits — as Micah Cartwright pointed out in his recent blog about State Farm — would also inform the commissioner’s decision-making. Given the important role market research can play in uncovering illegal insurance practices, full transparency throughout the research and reporting process would better achieve the entire purpose of market research and best serve consumers. But for now, at least in Oklahoma, a FOIA request will need to be made to find out what market behavior tests have been conducted since 2009, followed by another FOIA request to obtain copies of any of those surveys.