Downgraded

MEGA Life and Health Insurance Company, along with its parent company HealthMarkets Inc. and sister companies Chesapeake Life Insurance Company of Tennessee and Mid-West National Life Insurance Company, have had their insurance ratings downgraded by the A.M. Best Company. The insurers’ financial strength was downgraded from A- (excellent), to B++ (good), their insurer ratings were downgraded from a- (excellent) to bbb+ (good) and their credit ratings were downgraded from a bbb- (good) to bb+ (fair). The rating company also says that the future outlook for these companies is negative. To additional information on how A.M. Best rates companies, go to www3.ambest.com/ratings/.

Why the downgrade?

The insurers’ ratings were downgraded for a variety of reasons, including a decreasing market, senior management changes and changes in products. The downgrades come only weeks after the completion of a multi-state insurance investigation which fined the companies $20 million for bad faith insurance practices including consumer disclosure, oversight and training of agents, claims handling and complaint handling practices. That money will be divided by the 29 states who participated in the investigation.

Details of the investigation

The investigation, which took three years to complete, was conducted by the National Association of Insurance Commissioners (NAIC). The insurance departments of Washington and Alaska led the investigation and reviewed company documents and practices from 2000 to 2005 before instituting the record fine. The settlement outlines several areas in which the insurers must improve – or face an additional $10 million in fines. Some of those areas include:

• Agent training and oversight
• Cancellation, non-renewal and discontinuance notices
• Claims handling
• Complaints and grievances
• Creating an outreach program that assists customers with questions about their policies
• Establishing and maintaining a compliance program
• Identification of company
• Transparency of the companies’ relationship with associations