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MARKET CONDUCT EXAMINATION REPORTTITAN INDEMNITY INSURANCE COMPANYNAIC #13242June 30, 2009
Delaware Market Conduct Examination ReportTitan Indemnity Insurance CompanyTABLE OF CONTENTSSALUTATION .1EXECUTIVE SUMMARY .2SCOPE OF EXAMINATION.3HISTORY AND PROFILE .4METHODOLOGY .4EXAMINATION FINDINGS .5A. COMPANY OPERATIONS/MANAGEMENT .8Standard A 08 .8Standard A 09 .9B. COMPLAINT HANDLING .10Standard B 01 .10Standard B 02 .11C. PRODUCER LICENSING .12Standard D 02 .12D. UNDERWRITING AND RATING .13Standard F 01 .13E. CLAIM SETTLEMENT PRACTICES .14Standard G 02 .14F. INTERRELATED FINDINGS .15CONCLUSION .16i
SALUTATIONDecember 3, 2010Honorable Karen Weldin Stewart CIR-MLInsurance CommissionerState of Delaware841 Silver Lake BoulevardDover, Delaware 19904Dear Commissioner Stewart:In compliance with the instructions contained in Certificate of Examination Authority Number09-705, and pursuant to statutory provisions including 18 Del. C. §318-322, a market conductexamination has been conducted of the affairs and practices of:Titan Indemnity Insurance CompanyThe examination was performed as of June 30, 2009. Titan Indemnity Insurance Company,hereinafter referred to as the "Company" or as "Titan Indemnity," is incorporated under the lawsof Texas. The examination consisted of two phases, an on-site phase and an off-site phase. Theon-site phase of the examination was conducted at the following Company locations:56 West Main Street, Christiana, DE 1970220800 Harvard Road, Suite 300, Highland Hills, OH 44122One Nationwide Plaza, Columbus, OH 43215The off-site examination phase was performed at the offices of the Delaware Department ofInsurance, hereinafter referred to as the "Department" or "DDOI,” or other suitable locations.The report of examination herein is respectfully submitted.
Delaware Market Conduct Examination ReportTitan Indemnity Insurance CompanyEXECUTIVE SUMMARYTitan Indemnity Insurance Company was founded on August 31, 1983 in Connecticut. Its homeoffice is located at 2700 NE Loop 410, Suite 500, San Antonio, TX 78217. The Company’sprincipal executive offices are located at 5915 Landerbrook Drive, Mayfield Heights, OH44126. Titan Indemnity offers private passenger and commercial automobile insurance andcurrently operates in 15 states with approximately 148,386,120 of direct written premium in2008.The examination was a market conduct examination of the following business areas: CompanyOperations and Management; Complaint Handling; Policyholder Services; Underwriting andRating; and Claims Settlement Practices. The examination scope was later expanded to includeProducer Licensing and Marketing and Sales specific to a new product introduced in August of2007. This was a targeted examination of the Company’s private passenger automobileoperations.In conjunction with the market conduct examination, the Delaware Department of Insurancerequested a review of the Company’s use of discounts, surcharges and tier rating to determine ifthey were being applied in a consistent manner and according to the rate filings filed with theDepartment. There were no areas of concern identified during this review other than those listedbelow.Seven areas of concern were noted during the examination. These issues are more fully discussedin the highlighted sections noted after each summary below: The Company used branding for an affiliated company, Victoria Insurance that is notlicensed in Delaware. Examples of forms and correspondence used with consumerscontaining the Victoria branding observed during the course of the examination includepremium notices, applications, and correspondence with claimants and complainants.The Company failed to accurately record all complaints on the complaint register.Failure to record all complaints is a violation of 18 Del. C. §2304(17) which states,“Failure to maintain complaint handling procedures. — Failure of any person to maintaina complete record of all the complaints which it has received since the date of its lastexamination as otherwise required in this title. This record shall indicate the total numberof complaints, their classification by line of insurance, the nature of each complaint, thedisposition of these complaints and the time it took to process each complaint.”The Company failed to demonstrate that it had adequate complaint handling proceduresin place. Failure to have adequate complaint handling procedures is a violation under 18Del. C. §2304(17). The Company also failed to comply with complaint handlingrequirements stipulated by the Delaware Department of Insurance (DDOI) in violation of18 Del C. § 2304(26) which states, “Failure to respond to regulatory inquiries — Noperson shall, with such frequency as to indicate a general business practice, fail toprovide preliminary substantive responses to inquiries from the Department of Insurance2
Delaware Market Conduct Examination ReportTitan Indemnity Insurance Company regarding the denial of claims, cancellation, non-renewal, or refusal of benefits, refusal topre-authorize benefits, or violations of this title, within 21 calendar days of such inquiry.A response in compliance with this subsection shall not preclude the provision ofadditional information responsive to the inquiry.”The Company failed to track and maintain writing agent information at the policy levelfor any of the new business written during the examination period. As a result, theexaminers were unable to confirm compliance with 18 Del. C. §1703 which states, “Aperson shall not sell, solicit or negotiate insurance in this State for any class or classes ofinsurance unless the person is licensed for that line of authority in accordance with thischapter.”The Company failed to provide appropriate documentation for 11 of 32 files (34%) wherepolicy discounts were applied. Failure to document eligibility for discounts applied is aviolation of the ratemaking standards under 18 Del. C. s 2503(a) (2) which states, “Ratesshall not be excessive, inadequate or unfairly discriminatory”.The Company failed to provide a timely and accurate deductible reimbursement to oneclaimant and failed to pursue one out-of-pocket reimbursement after subrogation. Failureto promptly settle claims in accordance with the policy provisions may be an unfairclaims practice under 18 Del. C. §2304(16) (f) which states an unfair claims settlementpractice includes, “Not attempting in good faith to effectuate prompt, fair and equitablesettlements of claims in which liability has become reasonably clear.”The Company implemented a Specialty Auto Contest during the examination thatincluded increased compensation based on the volume of new applications submitted anda 50,000 “Specialty Auto Kicker” bonus to any producer that wrote 1000 new policiesduring the first 6 months of 2009 and had 200 or more policies written than the prioryear. The examiners found that this bonus was unusually excessive and merited mentionin the examination report.Recommendations have been made to remedy these concerns.SCOPE OF EXAMINATIONThe basic business areas that are subject to a Delaware Market Conduct Examination varydepending on the type on insurer. For all insurers these may include:Company Operations/ManagementComplaint HandlingMarketing and SalesProducer LicensingPolicyholder ServiceUnderwriting and RatingClaims/Settlements3
Delaware Market Conduct Examination ReportTitan Indemnity Insurance CompanyThis examination report is a report by exception rather than a report by test. This means that onlythose areas where recommendations are suggested are described and results indicated.The experience period for this examination is July 31, 2008 through June 30, 2009.HISTORY AND PROFILETitan Indemnity Company (“Titan Indemnity”) was incorporated on August 31, 1983 in the Stateof Texas. The company changed its name from “Technology Insurance Company” to “TitanIndemnity Company” in 1986. Titan Indemnity is one of seven insurance companies owned byTHI Holdings (Delaware), a Delaware holding company. On August 1, 2003, NationwideMutual Insurance Company acquired 100% of the outstanding capital shares of THI Holdings(Delaware), Inc., and the seven THI insurance companies became affiliates of the NationwideInsurance enterprise.Titan Indemnity offers private passenger and commercial automobile insurance and currentlyoperates in 15 states with approximately 148, 386,120 of direct written premium in 2008. TitanIndemnity is based in San Antonio, Texas. Operations in Delaware are serviced primarilythrough its offices in San Antonio, Texas and Highland Hills, Ohio.METHODOLOGYThis examination is based on the Standards and Tests for a Market Conduct Examination of aProperty and Casualty Insurer found in the Delaware Market Conduct Examiners’ Handbook.This chapter is derived from applicable Delaware Statutes, Rules and Regulations as referencedherein and the NAIC’s Market Regulation Handbook (2008 edition).The types of review used in this examination fall into three general categories: generic, sample,and electronic.A "generic" review indicates that a standard was tested through an analysis of general datagathered by the examiner, or provided by the examinee in response to queries by the examiner.A "sample" review indicates that a standard was tested through direct review of a random sampleof files using a sampling methodology described in the Delaware Market Conduct Examiners’Handbook and the NAIC’s Market Regulation Handbook. Samples of complaint files,underwriting files and settlement files were reviewed to determine that the processes describedby the Company are actually used by the Company.An "electronic" review indicates that a standard was tested through the use of a computerprogram or routine applied to a download of computer records of the examinee. This type ofreview typically reviews one hundred percent (100%) of the records of a particular type.4
Delaware Market Conduct Examination ReportTitan Indemnity Insurance CompanyIn this examination, the standards were tested through a combination of “generic” review anddirect observation of the processes used.Each Standard contains a brief description of the purpose or reason for the Standard. Theexaminers’ "Observations" are noted following each Standard tested. In some cases a"Recommendation" is made. Comments, Results, Observations and Recommendations arereported with the appropriate corresponding Standard.EXAMINATION FINDINGSThe following examination areas were reviewed and deemed as passing without notableexceptions:Company Operations and Management – 2008 NAIC MRH Chapter XVI Standard 1 - The regulated entity has an up-to-date, valid internal or external auditprogram.Standard 2 - The regulated entity has appropriate controls, safeguards and procedures forprotecting the integrity of computer information.Standard 3 - The regulated entity has antifraud initiatives in place that are reasonablycalculated to detect, prosecute and prevent fraudulent insurance acts.Standard 5 - Contracts between the regulated entity and entities assuming a businessfunction or acting on behalf of the regulated entity, such as, but not limited to, managinggeneral agents (MGAs), general agents (GAs), third-party administrators (TPAs) andmanagement agreements, must comply with applicable licensing requirements, statutes,rules and regulations.Standard 7 - Records are adequate, accessible, consistent and orderly and comply withstate record retention requirements.Standard 10 - The regulated entity has procedures for the collection, use and disclosure ofinformation gathered in connection with insurance transactions so as to minimize anyimproper intrusion into the privacy of applicants and policyholders.Standard 11 - The regulated entity has developed and implemented written policies,standards and procedures for the management of insurance information.Standard 12 - The regulated entity has policies and procedures to protect the privacy ofnonpublic personal information relating to its customers, former customers andconsumers that are not customers.Standard 13 - The regulated entity provides privacy notices to its customers and, ifapplicable, to its consumers who are not customers regarding treatment of nonpublicpersonal financial information.Standard 14 - If the regulated entity discloses information subject to an opt out right, theregulated entity has policies and procedures in place so that nonpublic personal financialinformation will not be disclosed when a consumer who is not a customer has opted out,5
Delaware Market Conduct Examination ReportTitan Indemnity Insurance Company and the regulated entity provides opt out notices to its customers and other affectedconsumers.Standard 15 - The regulated entity’s collection, use and disclosure of nonpublic personalfinancial information are in compliance with applicable statutes, rules and regulations.Standard 16 - In states promulgating the health information provisions of the NAICmodel regulation, or providing equivalent protection through other substantially similarlaws under the jurisdiction of the insurance department, the regulated entity has policiesand procedures in place so that nonpublic personal health information will not bedisclosed, except as permitted by law, unless a customer or a consumer who is not acustomer has authorized the disclosure.Standard 17 - Each licensee shall implement a comprehensive written informationsecurity program for the protection of nonpublic customer information.Complaint Handling – 2008 NAIC MRH Chapter XVI Standard 3 - The regulated entity takes adequate steps to finalize and dispose of thecomplaint in accordance with applicable statutes, rules and regulations and contractlanguage.Standard 4 - The time frame within which the regulated entity responds to complaints isin accordance with applicable statutes, rules and regulations.Marketing and Sales – 2008 NAIC MRH Chapter XVI Standard 1 - All advertising and sales materials are in compliance with applicablestatutes, rules and regulations.Standard 2 - Regulated entity internal producer training materials are in compliance withapplicable statutes, rules and regulations.Standard 3 - Regulated entity communications to producers are in compliance withapplicable statutes, rules and regulations.Producer Licensing – 2008 NAIC MRH Chapter XVI Standard 1 - Regulated entity records of licensed and appointed (if applicable) producersagree with insurance department records.Standard 3 - Termination of producers complies with applicable standards, rules andregulations regarding notification to the producer and notification to the state, ifapplicable.Standard 4 - The regulated entity’s policy of producer appointments and terminationsdoes not result in unfair discrimination against policyholders.Standard 5 - Records of terminated producers adequately document reasons forterminations.6
Delaware Market Conduct Examination ReportTitan Indemnity Insurance CompanyPolicyholder Services – 2008 NAIC MRH Chapter XVI Standard 1 - Premium notices and billing notices are sent out with an adequate amount ofadvance notice.Standard 2 - Policy issuance and insured-requested cancellations are timely.Standard 3 - All correspondence directed to the regulated entity is answered in a timelyand responsive manner by the appropriate department.Standard 5 - Policy transactions are processed accurately and completely.Standard 7 - Unearned premiums are correctly calculated and returned to the appropriateparty in a timely manner and in accordance with applicable statutes, rules andregulations.Underwriting and Rating – 2008 NAIC MRH Chapter XVI Standard 2 - All mandated disclosures are documented and in accordance with applicablestatutes, rules and regulations.Standard 3 - The regulated entity does not permit illegal rebating, commission-cutting orinducements.Standard 4 - The regulated entity’s underwriting practices are not unfairly discriminatory.The regulated entity adheres to applicable statutes, rules and regulations and regulatedentity guidelines in the selection of risks.Standard 5 - All forms, including contracts, riders, endorsement forms and certificates arefiled with the insurance department, if applicable.Standard 6 - Policies, riders and endorsements are issued or renewed accurately, timelyand completely.Standard 8 - Cancellation/nonrenewal, discontinuance and declination notices complywith policy provisions, state laws and the regulated entity’s guidelines.Underwriting and Rating – 2008 NAIC MRH Chapter XVII Standard 8 - Underwriting, rating and classification are based on adequate informationdeveloped at or near inception of the coverage rather than near expiration, or following aclaim.Standard 9 - Audits, when required, are conducted accurately and timely.Standard 10 - The regulated entity’s underwriting practices are not unfairlydiscriminatory. The regulated entity adheres to applicable statutes, rules and regulationsand the regulated entity’s guidelines in the selection of risks.Standard 11 - All forms and endorsements forming a part of the contract are listed on thedeclaration page and should be filed with the insurance department (if applicable).Standard 12 - Regulated entity verifies that the VIN number submitted with theapplication is valid and that the correct symbol is utilized.7
Delaware Market Conduct Examination ReportTitan Indemnity Insurance Company Standard 13 - The regulated entity does not engage in collusive or anti-competitiveunderwriting practices.Standard 16 - Cancellation/nonrenewal notices comply with policy provisions and statelaws, including the amount of advance notice provided to the insured and other parties tothe contract.Claims – 2008 NAIC MRH Chapter XVI Standard 1 - The initial contact by the regulated entity with the claimant is within therequired time frame.Standard 2 - Timely investigations are conducted.Standard 3 - Claims are resolved in a timely manner.Standard 4 - The regulated en
Titan Indemnity Insurance Company 2 EXECUTIVE SUMMARY Titan Indemnity Insurance Company was founded on August 31, 1983 in Connecticut. Its home office is located at 2700 NE Loop 410, Suite 500, San Antonio, TX 78217. The Company’s principal executive offices are located at 5915 Landerbrook Drive, Mayfield Heights, OH 44126.
