Connecticut Insurance Department Fines Safeco Companies $434,000
August 3, 2009

The Connecticut Insurance Department filed an order last week fining five subsidiaries of Safeco for a total of $430,000 for improper cancellations; improper ratings; employing unlicensed agents and adjusters; and other violations of the state's law.

Among the subsidiaries included in the fines were Safeco Insurance Co. of America in Washington (which received the largest fine of $144,500); Safeco Insurance Co. of Illinois ($104,500); General Insurance Co. of America in Washington ($76,000); American States Insurance Co. in Indiana ($68,000); and American Economy Insurance Co. in Indiana. ($41,000).

The violations varied among these.

"While the Connecticut Insurance Department acknowledges Safeco's commitment to corrective action, we are disturbed by the number and breadth of violations our exam team uncovered," says Connecticut Insurance Commissioner Thomas R. Sullivan. "Our examination of this firm calls into question the extent to which they have proper compliance monitoring and controls. On behalf of consumers of this state, we will be actively scrutinizing this company going forward to ensure they are committed to conducting business within the boundaries of our insurance laws."

While the violations varied by company, there were consistent violations related to instances of unlicensed adjusters and agents not appointed, according to the Connecticut Department of Insurance. In Connecticut, insurance companies are required by law to formally appoint and register with the state all agents who sell insurance products on their behalf. When combined, the state found that among Safeco and its subsidiaries, there were 55 instances in which agents were not appointed and 93 instances where individuals acted as adjusters without being licensed in accordance with Connecticut law.

Other violations included instances where the company left "loss of use" amounts off claimants' settlements, according to the state insurance department. According to information from the state, this occurred on average 23 percent of the time across all subsidiary companies. (Loss of use is the amount owed to claimants for the time during which they were not able to use their vehicles due to the damage involved.)

In addition, state officials say they discovered numerous underwriting and rating errors, which resulted in mistakes on premiums charged to customers. These mistakes, which included both under- and over-charging of premiums, also were found across all five of the Safeco subsidiaries involved and were related primarily to commercial policies.

Safeco has complied with the state's investigation, stipulation and final order regarding the fines, according to the state, and will be required to submit a compliance report to the insurance commissioner within 90 days.

The department examined the company's practices during a period of May 5, 2008 to approximately October 17, 2008. According to the insurance department's report of Safe, several of the undercharges were found to be related to "incorrect full glass coverage factors."

The Safeco subsidiaries were to refund the overcharges to those affected. Among the claims reviewed 60 of 5,572 auto glass claims were evaluated as a part of the market conduct examination.

The fines follow a large fine recently levied by the Connecticut Insurance Department against Massachusetts-based Liberty Mutual Insurance Companies. (CLICK HERE for related story.) The Liberty Mutual violations incurred a fine of nearly $1 million and spanned four subsidiaries, included incorrect auto and commercial ratings; misconduct involving licensing/appointment of agents; licensing of adjusters/appraisers; and instances of improper claim settlement. Liberty Mutual also was forced to pay reinstitution (included in the nearly $1 million fine) to 3,595 policyholders who were overcharged for their policies.

CLICK HERE for full text of report.

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