COMPLIANCE TEAM

Has the following scenario happened in your company? Producer Susie Sweatsocks has generated a million dollars in sales just with your company in the year she’s been appointed. Unfortunately, she has also incurred three apparently justified complaints in a rolling quarter, which is your company’s trigger for further review of her business. Company personnel start reviewing the past quarter’s business and because of their findings, they review the entire year’s business. Their findings include high numbers of lapses and not-takens, a total of eight justified complaints, suspicious signatures, missing paperwork and incomplete answers to health questions. Before the investigation is completed, you learn that the Department of Insurance is investigating Susie for not only her practices in your company, but her past two companies, as well. If the company had recognized any of these trends during Susie’s first six months with the company, Department attention might have been avoided. Susie certainly could have been among the producers let go early in her association.

How could the company have compiled the red flags from each area before they became real problems? The Compliance Team may be an answer. The concept can be applied in some format to companies of all sizes, all products and all distribution systems.

Insurance companies have at least one management team (that may be called a Compliance Team); often these are at a higher level than is discussed here. The members of this Compliance Team will need to have the ear of upper management, easy and credible access, but they may not be officers. What’s a Compliance Team and why would you want one?

Construction of the Team

The Team is cross-functional throughout the company and across distributions and product lines. Its members bring together information from each of these departments about producers and about company issues that can be addressed by this group. The value of this Team is in the broad overview it offers.

Recognizing that smaller companies will have much smaller Teams, we suggest that typically, the Team would include representatives from at least these areas:

ComplianceUnderwriting

LegalMarketing (each Division, as appropriate)

ClaimsAudit

Advertising reviewFraud Investigation (SIU)

Licensing & appointmentProducer Training

ComplaintsCustomer Service

Human Resources

For instance, whereas Underwriting may only be aware that a particular producer is continually pushing underwriting guidelines to the max in order to get his or her policies issued, Customer Service may be aware that they receive many complaints about this producer’s sales methods, and Advertising Review may be aware that the producer has violated the company’s advertising pre-approval requirement several times. If any of these department representatives brings up that producer’s name, the entire Team will be able to have input about the producer’s behavior.

Without such communication among these departments, that producer may erode the company’s reputation and continue selling bad business for a much longer time. The information shared on this Team gives its members, and Compliance, a panoramic view of the Field and enables red-flagging of potential issues before they become big problems.

The representatives from each of the areas, if they are not the Managers, must have the trust of those Managers in order to effect change. Most often, mid- to upper-level Managers are the working members of this Team.

In smaller companies, there may only be a handful of Team members, but they still represent all areas listed. In larger companies, there may be 12-15 members. In some large companies, Compliance Teams meet in each geographic location plus a company-wide Compliance Team meets telephonically. Attached Template 1 gives a guideline regarding membership of the Team and the types of reports often used.

Function(s) of the Team

The Team members will review a cross-section of information through reports and report synopsis and, typically, discuss the red flags that pop up during the review. These reports will include such things as Persistency/Not-Takens, Claims, Complaints, Underwriting Exceptions, Suitability Concerns, Replacements, Undisclosed Replacements, New Business problems and Training issues. Some companies have designed a Red Flag Report that draws on all the monitoring reports in the company and ranks producers according to “hits” on these other reports. Even with a comprehensive report, however, there should be a group of concerned staff that reviews these reports together.

For example, if a producer shows up at the top of the scale on Replacement and Complaint ratios, he/she will show up on the Red Flag Report. There is at least one company that has designed the Red Flag Report to reflect all the ratios or hits from other reports, plus has a field in each producer’s record that is an “X” factor that the Compliance Department can assign. This X factor may reflect a general uneasiness with the producer’s personality or procedures – a “smell bad” factor.

The primary function of this team, then, is to monitor the company’s sales practices through an overview of activities of the Field. Generally, the result of this overview is not actions taken, but recommendations given.

The Team provides recommendations to whatever departments are concerned with a Red Flag issue, such as Marketing or Customer Service, and may take the form of recommendations for changes to processes, for additional training, or for producer disciplinary action. Because the output of the Team is a function of negotiation and cross-functional decision-making, each of the Departments represented will be able to stand behind and act upon the recommendations of the Team.

Procedures of the Team

To get the Team rolling, the members may want to meet monthly. Once they get their purpose, function and processes determined and in place, many Compliance Teams will meet only quarterly.

The Team reviews rolling reports each quarter - for instance, a rolling annual report on Replacement ratios. If the company has not already assigned threshold levels for such key areas as Replacements, Undisclosed Replacements and Justified Complaints, the Team may wish to set these levels for its own purposes. These numbers are confidential and will not be publicized to the field or to the home office. (If the threshold numbers were known to the field, for instance, and the threshold level for replacements was 20% per quarter, then the producer could make sure she/he only hits 19%.)

Attached Template 2 provides a suggested standing agenda that can be modified to suit your company’s lines of business and departments.

Most Teams do not keep detailed notes of their meetings for publication, especially not including names of producers discussed. This is for the protection of the company and the producer, since the producers are not necessarily found in violation of any company policies though they are a subject of discussion. The standing agenda is often the only public record kept.

However, the Team typically will request feedback through its members on the actions it recommends to monitor that an appropriate action is taken. These actions are recorded in the company’s procedure changes, or in training given, or in disciplinary action taken by Marketing or Legal, and will be reported at the ensuing Team meeting, but will not be a part of the minutes of that meeting.

Getting Started

Upper management must be behind this initiative, but it can be a grass-roots movement to get it started. Those drafted to serve should also be committed to the improvement of the company, and the Team members and Chair will need to persevere until the results of the Team are proven. At that point, it will become not only a habit, but a necessary part of the self-monitoring the company chooses to do.

In a broad view, over a period of time, the Compliance Team can help identify and correct problems before they come to the attention of state regulators, and help improve your company’s market practices to reduce the risk of litigation.