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Health insurance company faces up to $51 million fine

Minnesota Commerce Commissioner Mike Rothman announced that a Regulatory Settlement Agreement has been entered into with National Union Fire Insurance Company (NUFIC), an AIG Company.

Minnesota was one of five leading states to conduct a Multistate Market Conduct Examination. The agreement imposes an initial fine of $39 million. The company will add $1 million to the fine for each additional state, including the District of Columbia, that joins the agreement, up to a total of $51 million. A total of 41 states have joined the agreement to date. States have until November 29, 2012 to join the settlement.

"This AIG company sold health insurance group policies to individual consumers through misrepresentation and false marketing practices," said Rothman. "I am pleased our investigators put a stop to these practices that did not comply with Minnesota law. The Department will continue to monitor this company to ensure their compliance with the agreed upon Corrective Action Plan."

The investigation of the company began on September 28, 2010 by the Ohio Department of Insurance. Minnesota had conducted a prior investigation of the company and joined Ohio as a leading state in the Market Conduct Examination. The examination was initiated based on allegations pertaining to the conduct of NUFIC's Accident and Health Insurance Business, which included alleged misconduct of rate and form filing, policy fulfillment, producer licensing and appointment, and vendor management. The Multistate Market Conduct Examination of NUFIC based on the regulatory issues listed above was based on the period of January 1, 2008 through June 30, 2010.

The Multistate Market Conduct Examination focused on the marketing and sales practices for accident and health insurance products through the company's Accident and Health Division. It was alleged by the Ohio Department of Insurance in their consent order that the Direct Marketing Business Unit marketed and sold non-employer group policies for which premium rates and the classification of risks had not received regulatory approval.

Further, it was alleged that in certain instances the coverage under policies that were filed, approved, and issued used as blanket accident/sickness policies for groups were improperly marketed to individuals. This practice constitutes a violation of law in various states and the company was ordered to cease marketing coverage under policies that were filed and approved as blanket accident/sickness policies to individuals.

"This year the Department of Commerce has taken action against a wide range of companies for misrepresenting insurance products and misleading consumers," said Rothman. "We will continue to keep a watchful eye to protect the integrity of the insurance marketplace and consumers." This type of misconduct at the expense of Minnesotans is simply not acceptable."

Currently, 41 states including Minnesota have signed onto the agreement which will result in a settlement of $41 million nationally. States have until November 29, 2012 to join the agreement. The fine will be distributed according to a formula based on premium. Depending on the number of states, Minnesota is estimated to receive up to $777,937 in penalties as well as an additional $50,000 for its role as a lead state in the examination.

NUFIC has agreed to draft and submit a Corrective Action Plan that address the issues raised in the Multistate Examination. The Corrective Action Plan will address issues pertaining to regulatory filing, handling of consumer complaints, and the marketing of certain products and services. The Lead States may impose up to $21 million in administrative penalties if the company fails to satisfy the Corrective Action Plan implementation deadlines.

If consumers have any insurance related questions or would like to report suspicious activity, they are encouraged to contact the Minnesota Department of Commerce. The Commerce Department's Consumer Response Team can be reached by phone at (651) 296-2488 or by email at Complaints can also be sent by mail to Minnesota Department of Commerce, 85 7th Place East, Suite 500, Saint Paul, MN 55101.