State insurance departments regulate the insurance industry in their states. They do this to protect not only consumers, but also to protect insurers so that everybody gets a fair deal. So why is it that so many insurers are not playing by the rules these days?

Case in point

The California Court of Appeals recently reversed a lower court ruling in which Blue Shield of California Life and Health Insurance Company (Blue Shield) rescinded a short term health and accidental death policy because of alleged material misrepresentations made in a policyholder’s application. Blue Shield failed to attach his application or endorse it on the insurance policy when it issued the policy – a practice that MUST occur according to law (CA Insurance Code Sections 10113, 10381.5 and 10384, Business and Professions Codes 17200, et seq and 17500).

Post claim underwriting

Post claim underwriting is a practice whereby insurers don’t thoroughly review an insurance application until a claim is filed. That’s what happened here and is something that typically occurs with low level or lower cost policies. The bottom line – if insurance companies don’t attach a copy of the policy or endorse it to the policy when it is issued, then they can’t logically hold the insured liable for alleged misrepresentations later.

Shouldn’t they know better?

The average consumer probably doesn’t know the definition of post claim underwriting. However, insurance companies do, yet they continually try and get away with these types of practices in the hopes that consumers won’t know the difference or won’t fight back. So, the answer to ‘shouldn’t they know better’ is ‘yes’, but to ask a follow up question – ‘if nobody notices, does that make it ok?’

You can’t do that!

Insurance company television ads lead us to believe that their service is what matters most. However, practices such as post claim underwriting leave us with the impression that it’s more about the money and less about the service. The truth of the matter is that unless the state insurance department happens to find out about these practices, it is up to policyholders to fight back by telling their insurance company, ‘You can’t do that!’

Get help

Knowing which practices are legal and which are not can be difficult for many insureds to sort out. When in doubt, get help by contacting an attorney or your state’s insurance department for assistance. To contact an attorney near you, click here. To see a list of state insurance department contact information, go to www.naic.org/.