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Update: Aflac to pay penalty of $1.6 million after ‘market conduct’ reviews in Idaho, Minnesota and Missouri

A review of Aflac’s business by three states — Idaho, Minnesota and Missouri — has led to the company agreeing to pay a combined penalty of $1.6 million and submit compliance reports for three years.

The "market conduct" reviews, launched in 2009, covered a variety of areas, including underwriting, sales and marketing, sales agent licensing, handling of complaints and claims practices, according to a settlement order from the three states. It was signed May 30 and made public earlier this week by Idaho.

“The department is tasked with the responsibility of monitoring the way insurance companies and producers conduct business in Idaho to ensure that policyholders are treated fairly,” Bill Deal, Idaho Department of Insurance director, said in a statement.

“We strive to protect consumers from improper market conduct by insurance companies and agents,” Mike Rothman, commissioner of the Minnesota Department of Commerce, said in a statement. “We are pleased with the outcome of this multi-state examination and Aflac’s cooperation.”

Under the agreement, Columbus-based Aflac will pay Minnesota and Missouri $700,000 each, while Idaho receives $200,000. Referred to in the settlement document as American Family Life Assurance Co., the supplemental health and life insurer also faces a lengthy oversight period in which it is expected to submit compliance reports for three years, starting this December. The reports are due every six months.

The states, which did not release specific areas to be corrected, stressed that “Aflac neither admitted nor denied that the issues identified constituted violations of law or regulations.”

Aflac spokesman Jon Sullivan issued a statement from the company concerning the matter: “Aflac works closely with departments of insurance, which regularly conduct examinations of this nature. Our goal is always to work with officials to ensure that we consistently improve the way we serve customers with the highest level of integrity.”

Best known for its humorous duck television commercials, Aflac issues insurance policies to workers in the United States and Japan, with the Asian nation accounting for about 75 percent of its business. Policyholders are paid should they suffer an accident or illness, forcing them to miss work.

Idaho Department of Insurance spokeswoman Tricia Carney said the reviews, or investigations, are not necessarily frequent, but they do happen and are a “normal” step in the state’s oversight process.

“That’s part of the way that we regulate them and make sure that they are in compliance,” she said. “And then it’s also a way of knowing how we can help them come back into compliance if that’s necessary.”

Missouri Department of Insurance spokesman Travis Ford said such examinations are common, particularly with large national companies. He pointed to fairly recent major settlements with insurers Prudential, MetLife and AIG. Those covered all 50 states and the District of Columbia, instead of just three states.

“I think the corrective action plan is the key with this one,” Ford said. “We’re very interested in seeing the corrections that the company is planning to make.”

The $1.6 million, meanwhile, is a drop in the financial bucket for Aflac, which is headquartered on Wynnton Road in Columbus. The firm racked up a profit of $1.96 billion on revenues of nearly $22.2 billion in 2011. In the first quarter of this year, it posted a profit of $785 million on revenues of $6.2 billion.

The insurer, founded in 1955 and chartered in Nebraska for tax reasons, employs about 4,400 in the United States, nearly 4,000 of those in Columbus, with another 5,000 on the payroll in Japan.

THREE-STATE REVIEW OF AFLAC

Here are the areas examined by the states of Idaho, Minnesota and Missouri, according to a settlement agreement reached with Columbus-based Aflac:

Sales of duplicate accident and health coverage

Sales that are a replacement or conversion of existing coverage

Suitability and overselling

Policies containing waiting periods

Record retention and claim date stamps

Supervision of advertising created and disseminated by producers (agents)

Supervision of sales

Supervision of producer bonuses, incentives, contests, prizes and awards

Solicitation and delivery of individual policies and cross-border sales

Delivery of individual contracts for multi-state accounts

Discounts and special offers

Offering of value-added services

Qualified plan requirements (Minnesota only)

Suitability requirements (Minnesota only)

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