A guest blog by Carrie Cope of Schuyler, Roche & Crisham, P.C.:
There are times when the unwelcome discovery of a regulatory violation, such as the inadvertent issuance of an insurance policy in a state where the company isn’t licensed, can put an insurer between that proverbial “rock and a hard place.” While disclosure to the governing regulatory agency may be the company’s preferred plan of action to resolve the problem, management may be concerned that voluntarily disclosing it may result in a fine or penalty or uncover more than hypothetical worms under that proverbial rock. As a result, it’s not surprising that insurance companies approach resolving such problems with different strategies.
There are companies that closely monitor compliance laws and work as a team with regulators to solve any problems (my clients), those that believe they own the playing field and that flagrantly flaunt the rules (of these I have only heard fireside tales and whispered rumors), and those that fall somewhere in the middle. In an ideal (and mythical) world, insurance laws and regulations would always be perfectly clear and easy to apply, and human error would not exist. But we live in the “real” world, albeit one transformed by the ability to communicate in cyberspace. (I admit, it’s a bit anachronistic to use “albeit” and “cyberspace” in the same sentence.) The fact is that many practical aspects of conducting the “business” of insurance have changed due to advances in technology.
In the past, disclosing a regulatory violation to one state’s regulator did not necessarily mean disclosure to all, allowing an insurer’s clean slate with one state to remain unsullied by a problem with another. As more information is stored electronically and accessibility to it increases, those days are now gone. For example, state insurance departments are now able to use an electronic system called “I-Site” that is a compilation of information from other regulatory databases. While it certainly makes sense that any regulator would want to ascertain whether an insurer’s problem in one state is part of a larger systemic problem, under some circumstances, having access to an insurer’s historical record in 50 states may hinder the resolution of some issues. Wading through mounds of information can slow any review process down. In addition, some historical information may be inaccurate or irrelevant to the problem being evaluated, but may still color the recipient’s perception of how an insurer approaches compliance issues.
Of course, increased access to information afforded by advancing technology has its benefits as well. We recently used a helpful source called the Internet “Wayback Machine” which provides access to the Internet Archive’s collection of web pages. We were able to provide support for a client’s position by obtaining historical information that had been lost. Not surprisingly the mere availability of such information does not mean it can be used in court under all circumstances. In Telewizja Polska USA, Inc. v. EchoStar Satellite Corp., No.02 C 3293, 2004 U.S.Dist. LEXIS 20845 (N.D. Ill. Oct. 14, 2004), the United States District Court for the Northern District of Illinois admitted evidence of what the plaintiff’s website looked like on a certain date where it was accompanied by an affidavit from an Internet archive employee authenticating copies of the website. However, in Specht v Google, Inc., 758 F. Supp. 2d 570(N.D.Ill. 2011),the court struck screen shots of the plaintiff’s website from the record because the exhibits had not been authenticated.
Creative problem solving has always been essential to vanquishing competitors in the business world generally and the insurance industry in particular, and having the right information at the right time is a key ingredient in both problem solving and risk evaluation. Insurers that are able to access and manage information effectively will be better positioned to move forward in soft or saturated markets, as well as identify new insurance markets. It has long been said that the best predictor of future behavior is the past. Never before have we had better tools to access the past in order to plot our course forward. One challenge faced by all sectors of the insurance industry will be to keep pace with rapid advances in technology while managing the sometimes overwhelming flow of, and unlimited access to, information.
Thank you for your revealing and cautionary article, Ms. Cope. It would seem we have one foot in cyberspace and the other on a skateboard of ever morphing reulatory reality.