2001 PROPERTY AND CASUALTY TARGET MARKET CONDUCT EXAMINATION
OF
DIRECT GENERAL INSURANCE COMPANY
(DIRECT GENERAL CORPORATION)
BY
THE FLORIDA DEPARTMENT OF INSURANCE
File Date 11/2/01
TABLE OF CONTENTS
PART NUMBER SUBJECT
PAGE NUMBER
I. INTRODUCTION
1
II. PRE-EXAM REVIEW OF
COMPANY WRITINGS
2
III. COMPANY
OPERATIONS/MANAGEMENT
3
IV. REVIEW OF POLICIES
A. PRIVATE PASSENGER
AUTOMOBILE
5
V. CLAIMS REVIEW
8
VI. COMPLAINTS REVIEW
10
VII. PENDING ISSUES
11
VIII. EXHIBITS
12
I.
INTRODUCTION
Direct General Insurance Company is a foreign property and
casualty insurer licensed to conduct business in the State of
Florida during the scope of this property and casualty market
conduct examination, January 1999 through December 2000.
This is the first property and casualty market conduct
examination of this Company by the Florida Department of
Insurance.
The purpose of this target examination was to ensure compliance
with the Florida Statutes and Administrative Code.
During this examination, records reviewed included policies,
claims and consumer complaints for the period of January 1999
through December 2000, as reflected in the report.
This report contains examination results addressing all areas of
noncompliance found during the course of the examination.
In all instances, the Company was directed to take corrective
action as required, issue appropriate refunds, make all
necessary filings with the Department and immediately cease any
activity that continues to place the Company in noncompliance
with Florida Statutes/Rules.
As a result of the findings of this examination, $202.00 was
returned, and $1,424.31 will be returned, to Florida consumers
due to overcharges of premium, underpayments of claims and/or
inappropriately charged fees. In addition, the Company has
been directed to re-adjust all subrogated claims that were
closed during the scope of the examination. The Company
should reimburse approximately $16,483.00 in deductibles that
were initially paid by insureds, but also collected by the
Company through the subrogation process.
II. PRE-EXAM
REVIEW OF COMPANY'S WRITINGS
A. CERTIFICATE OF
AUTHORITY - AUTHORIZED LINES
1. General
Comments
The Certificate of Authority/Renewal Invoices were reviewed for
all years within the scope of the examination.
2. Exam
Findings
The review included verification of the lines of business the
Company was authorized to write during the scope of examination
versus those lines actually being written. It also
included verification that notification requirements were met
for any line of business that was discontinued.
No errors were found.
III. COMPANY
OPERATIONS/MANAGEMENT
A.
PROFILE
Direct General Insurance
Company (Company) (formerly known as Independent Property and
Casualty Insurance Company) was incorporated in the State of
Florida on December 16, 1990 and began operations on January 1,
1991. At that time, the Company was a wholly-owned
subsidiary of Independent Insurance Group, Inc.. On
February 29, 1996, Independent Insurance Group was acquired by
American General Corporation, and became a wholly-owned
subsidiary of AGC Life Insurance Company. On March 14,
1997, Direct General Corporation (formerly known as Direct
Corporation), a Tennessee Corporation, acquired all of the
voting capital stock of the Company, and on April 1, 1997, the
Company name was changed to Direct General Insurance Company.
The majority of the Company’s
business is produced by Direct General Insurance Agency, Inc..
This agency produces business for the Company through
approximately sixty-six (66) agent offices in Florida. The
Company’s products are also produced by the Company’s managing
general agency, Maitland Underwriters, Inc., through
approximately forty (40) agent offices operating as Cash
Register, Friendly or Insurance Options.
An independent adjusting firm,
Direct Adjusting Company, Inc., handles all adjustment of
claims. This is a wholly-owned subsidiary of Direct
General Corporation and is located in Tampa, Florida.
Salvage is handled in the Memphis, Tennessee claims office.
The Home Office of the Company
is located in Nashville, Tennessee.
B. MANAGEMENT
The Company’s computer system,
AS/400, is a central processor for daily processing of
underwriting, policyholder services, claims, premium finance,
control, reporting and accounting functions for all locations.
In the event of a disaster at one location, the system would
roll into another location so that operations could continue.
The Company has filed an
Anti-Fraud Plan to comply with Section 626.9891, Florida
Statutes.
Internal audits are performed
under contract by the CPA firm of Faulkner, Mackie & Cochran, P.
C. The procedure is on-going, with audits being conducted
in a different office each time.
C. OPERATIONS
Direct General Insurance
Company specializes in writing nonstandard Private Passenger
Automobile insurance in Florida.
IV. REVIEW OF POLICIES
A. PRIVATE
PASSENGER AUTOMOBILE
1.
Application of Rules, Rates and Forms
a. Rate/Rule
Filings
Direct General Insurance Company independently files rules/rates
in accordance with Section 627.0651, Florida Statutes.
b. Form
Filings
Direct General Insurance Company independently files forms in
accordance with Section 627.410, Florida Statutes.
c.
Statistical Affiliation
National Independent Statistical Service (NISS) acts as the
Company's official statistical agent.
2. Premium
and Policy Counts
Direct Premiums Written and in-force policy counts for the scope
of the examination are as follows:
Year
DPW
Policy Count
1999
$46,386,369
57,775
2000
$74,924,075
88,748
The increase in DPW and Policy Count from 1999 to 2000 was due
to the Company’s purchased several franchised agencies, which
increased its marketing force.
3. Exam
Findings
One hundred (100) policy files were examined.
Ten (10) errors were found.
Errors affecting premium resulted in three (3) overcharges
totaling $202.00 and two (2) undercharges totaling $73.00.
The errors are broken down as follows:
1. Four (4)
errors were due to failure to maintain proof of prior insurance.
This constitutes a violation of Section 627.318, Florida
Statutes.
2. One (1) error
was due to use of unfilled base rating factor. This
constitutes a violation of Section 627.0651, Florida Statutes.
3. One (1) error
was due to failure to follow the filed rating plan. This
constitutes a violation of Section 627.0651, Florida Statutes.
The Company failed to allow the filed 25%
multi-car discount. This resulted in an overcharge of
$85.00, which has been refunded by the Company.
4. One (1) error
was due to failure to follow the filed rating plan. This
constitutes a violation of Section 627.0651, Florida Statutes.
The premium was incorrectly calculated. This resulted in
an undercharge of $47.00.
5. One (1) error
was due to failure to follow the filed rating plan. This
constitutes a violation of Section 627.0651, Florida Statutes.
The Company did not apply correct automobile symbols to
calculate the premium. This resulted in an undercharge of
$26.00.
6. One (1) error
was due to failure to follow the filed rating plan. This
constitutes a violation of Section 627.0651, Florida Statutes.
An incorrect rating classification was
used to calculate the premium. This error resulted in an
overcharge of $70.00, which has been refunded by the
Company.
7. One (1) error
was due to failure to provide safety device discounts. This
constitutes a violation of Section 627.0653, Florida Statutes.
The vehicle inspection report indicates
the vehicle was equipped with anti-lock brakes and air bags, but
no credit was allowed. This resulted in an overcharge of
$47.00, which has been refunded by the Company.
V. CLAIMS REVIEW
One hundred (100) claims were examined.
Fifty-five (55) errors were found.
Five (5) errors resulted in underpayments totaling $1,424.31,
which have not yet been refunded.
The Company's internal claims handling procedures and reserving
practices are described in Exhibit I.
The errors are broken down as follows:
1
Thirty-three (33) errors were due to use of
unlicensed/unappointed adjusters. This
constitutes a violation of Section 626.863, Florida Statutes.
2. Four (4)
errors were due to failure to comply with Unfair Claim Practices
Requirements. This constitutes a violation of Section 626.9541,
Florida Statutes.
The full amount of claims paid was recovered through
subrogation, but only two-thirds of the deductible was
reimbursed to insureds. These errors resulted in
underpayments totaling $1,333.34, which have not been refunded
by the Company. See Pending Issues Section.
The Company has provided computer runs to document that 104
subrogated claims had deductible reimbursements totaling
$32,966.42. The correct total reimbursement should have
been $49,449.16. This resulted in underpayments of
approximately $16,483.00. The Company has been directed to
re-adjust these claims and to refund the remainder of the
deductibles. (Exhibit II). See Pending Issues
Section.
3. Four (4)
errors were due to failure to maintain claim documentation.
This constitutes a violation of Rule 4-166.022, Florida
Administrative Code.
Subrogation notes and information was not contained in these
claim files.
4. Three (3)
errors were due to failure to provide written explanation of
claim denials. This constitutes a violation of Rule
4-166.026, Florida Administrative Code.
5. Three (3)
errors were due to failure to comply with PIP requirements of
mailing notice to an insured advising of PIP rights and benefits
within 21 days of receipt of a claim. This constitutes a
violation of Section 627.7401, Florida Statutes.
6.
Three (3) errors were due to failure to communicate timely
following report of a claim. This constitutes a violation
of Rule 4-166.024, Florida Administrative Code.
7. Two (2)
errors were due to failure to disclose information requested by
an attorney. This constitutes a violation of Section
627.4137, Florida Statutes.
8. Two (2)
errors were due to failure to properly forward automobile titles
to the Department of Highway Safety and Motor Vehicles.
This constitutes a violation of Section 319.30, Florida
Statutes. Notes on the data log indicate the titles were
sent to a salvage office in Memphis, Tennessee, and to the
Department of Highway Safety and Motor Vehicles within 72 hours.
9. One (1) error
was due to failure to comply with PIP benefit requirements.
This constitutes a violation of Section 627.736, Florida
Statutes. Medical bills were not paid within thirty (30)
days of receipt and no interest was paid. This error
resulted in underpayment of $90.97, which has not been refunded.
See Pending Issues Section.
VI.
COMPLAINTS REVIEW
A complete record of all the complaints received by the Company
since the date of the last examination has been maintained as is
required by Section 626.9541(1)(j), Florida Statutes.
Procedures for handling these complaints have been established
by the Company. Complaint handling procedures are described in
Exhibit III. Consumer complaints received during the scope
of examination were reviewed, and findings are as follows:
A.
COMPANY RECEIVED COMPLAINTS
Ten (10) complaints were
reviewed.
No errors were found.
VII.
PENDING ISSUES
The following issues were pending at the conclusion of the
examination field work:
1. The Company
has been directed to re-adjust 104 claims that were subrogated
and only a portion of the deductible was reimbursed to the
insured/claimant.
(Exhibit II). See Section V, Item 2.
3. Four (4)
underpayments totaling $1,333.34 have not yet been refunded.
See Section V, Item 2.
2. One (1)
underpayment of interest in the amount of $90.97 has not yet
been refunded. See Section V, Item 9.
VIII. EXHIBITS
SUBJECT
EXHIBIT NUMBER
SUMMARY OF CLAIMS PROCEDURES
I
LETTER DATED FEBRUARY 15, 2001
II
RE: CLAIMS SUBROGATION – DEDUCTIBLES
STANDARD PRACTICE MEMORANDUM -
III
CONSUMER COMPLAINT COMPLIANCE