NYDFS Market Conduct Exams Finds Fraud Warning Violations at NY Life Companies
Lessons Learned for Strengthening Insurance Compliance Frameworks
The New York Department of Financial Services (NYDFS) recently released targeted market conduct examination reports that exposed significant regulatory compliance issues related to fraud warning requirements at affiliated companies. The examinations, which took place in 2024 and covered the period from January 2016 through December 2023, uncovered deficiencies in claims processing documentation at both subsidiaries, based in Syracuse, New York.
Violations of Insurance Regulation 95
The NYDFS examinations revealed specific violations of Insurance Regulation 95, which sets forth fraud prevention and detection requirements for insurers operating in New York. The violated sections of the regulation aim to ensure the visibility and standardization of fraud warnings across all insurance companies conducting business in the state. It's crucial to note that New York prohibits the inclusion of fraud warning statements on life insurance and annuity applications.
According to the NYDFS report on one of the subsidiaries, the company "violated Section 86.4(d) of Insurance Regulation 95 by using claim forms that failed to place the fraud warning statement at the top of the page, when the form is signed by both the claimant and the physician."
Scope of the Violations
At one of the affiliates, the NYDFS examiners reviewed a total of 113 life insurance death claims, comprising:
- 30 paid death claims
- 8 denied death claims
- 9 resisted death claims
- 36 closed death claims
- 30 pending death claims
The examination revealed that 100% of the reviewed claims contained incorrectly positioned fraud warnings.
Furthermore, the NYDFS examination identified a single instance in which the company failed to provide the mandatory 90-day claim investigation status updates to claimants, highlighting the critical intersection of compliance requirements and consumer protection regulations.
At the other subsidiary, examiners discovered a separate violation of Section 86.4(e), which relates to unauthorized modifications of the required fraud warnings. The examination found non-compliant forms in:
- 12% of paid claims reviewed
- 16% of pending claims reviewed
- 48% of resisted claims reviewed
Compliance Management Response and Lessons Learned
In response to these findings, both companies have taken steps to implement compliance management solutions, including:
1. Revising claim form layouts to meet regulatory requirements
2. Enhancing staff training on proper fraud warning procedures
3. Updating consumer communication protocols
4. Improving compliance documentation processes
For insurance compliance officers and their teams, these cases emphasize the critical importance of:
1. Conducting regular policy review processes to ensure all forms comply with current requirements
2. Providing ongoing compliance training for claims processing staff
3. Implementing enhanced compliance monitoring of claims documentation
4. Performing regular regulatory reporting reviews
To avoid similar regulatory pitfalls, companies may benefit from looking at their compliance programs to be sure they include these elements:
1. A robust compliance framework to addresses state-specific insurance regulations
2. Regular audits of all claims-related documentation to identify potential compliance gaps
3. Investment in comprehensive compliance training programs for all staff involved in claims processing
4. A culture of compliance that emphasizes attention to detail and adherence to regulatory requirements
At Currin Compliance Services, we understand the complex and ever-changing landscape of insurance compliance. Our team of experienced professionals is dedicated to helping insurers navigate the intricacies of regulatory compliance, offering tailored solutions and expert guidance to mitigate risk and ensure adherence to state and federal regulations.
Don't let compliance missteps put your company at risk. Contact Currin Compliance Services today to learn how we can help you strengthen your compliance framework and safeguard your organization's reputation.
