A South Dakota legislative panel has approved a package aimed at giving people better protection against unfair practices by insurance companies.
The proposals were drafted at Gov. Dennis Daugaard’s request after reports that an insurance company had harmed some customers who held policies for long-term care. A state review found current laws fall short of providing adequate protection against unfair handling of claims by insurance companies.
The House Judiciary Committee voted unanimously to send the measures to the full House for further debate.
One measure defines unfair practices and allows the state insurance division to order insurance companies to stop such practices. The division also could fine a company up to $1,000 for each violation, to a total of $100,000. For flagrant violations, a company could be fined up to $25,000 for each violation, to a total of $250,000.
State Insurance Director Merle Scheiber said the measure would protect consumers from situations in which insurance companies unfairly handle, investigate, settle or deny claims.
“Contrary to the belief of most South Dakota consumers, these laws do not exist today,” Scheiber.
The measure is based on a model developed by the National Association of Insurance Commissioners and adopted by 46 states and territories, Scheiber said.
Larry Deiter, head of enforcement for the state insurance division, said the agency can resolve problems under current law, but the proposals will help solve problems more efficiently to protect insurance customers.
A second bill approved by the committee would allow the insurance division to disclose more information about actions it has taken against insurance companies. Another would allow the division to impose penalties without an insurance company’s agreement. The measures would not change a current provision that allows companies to request administrative hearings before penalties are imposed and also appeal in court.
Representatives of insurance companies testified in favor of the measures, saying the bills require practices that most insurance companies already follow.
Jason Glodt, representing De Smet Farm Mutual Insurance Co., was the only person to testify against the bill setting standards. He said the measure uses broad and vague terms without defining what is reasonable. A small insurance company could have trouble paying fines allowed in the bills, he said.
Glodt also said the bills should only apply to companies selling long-term care insurance because the package was written in response to a problem caused by such a company.
Josh Andersen, the insurance division’s senior lawyer, said the laws must apply to all kinds of insurance companies, not just those selling long-term care insurance. The bill applies to companies selling life, health, property and casualty insurance, he said. State officials and judges routinely interpret “reasonable standards,” Andersen said.
Daugaard requested that insurance laws be reviewed after The Argus Leader reported that a company had hurt some customers. The insurance division eventually fined Ability Insurance $325,000 and required the company to fix problems that included wrongfully denying claims for long-term care.
Ability officials have said they have made changes to address findings in the insurance division’s report so the company can comply with state laws and regulations.
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