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[IN ACCORDANCE WITH CALIFORNIA INSURANCE CODE (CIC) SECTION 12938, THIS REPORT WILL BE MADE PUBLIC AND PUBLISHED ON THE

CALIFORNIA DEPARTMENT OF INSURANCE (CDI) WEBSITE]

WEBSITE PUBLISHED REPORT OF THE MARKET CONDUCT EXAMINATION OF THE CLAIMS PRACTICES OF

USAA LIFE INSURANCE COMPANY NAIC # 69663 CDI # 1946-3

AS OF JULY 15, 2017

ADOPTED FEBRUARY 23, 2018

STATE OF CALIFORNIA

CALIFORNIA DEPARTMENT OF INSURANCE MARKET CONDUCT DIVISION

FIELD CLAIMS BUREAU

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NOTICE

The provisions of Section 735.5(a) (b) and (c) of the California

Insurance Code (CIC) describe the Commissioner’s authority

and exercise of discretion in the use and/or publication of

any final or preliminary examination report or other

associated documents. The following examination report is

a report that is made public pursuant to California Insurance

Code Section 12938(b)(1) which requires the publication of

every adopted report on an examination of unfair or

deceptive practices in the business of insurance as defined

in Section 790.03 that is adopted as filed, or as modified or

corrected, by the Commissioner pursuant to Section 734.1.

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TABLE OF CONTENTS

FOREWORD ................................................................................................................... 1

SCOPE OF THE EXAMINATION ................................................................................... 2

EXECUTIVE SUMMARY ................................................................................................ 4

DETAILS OF THE CURRENT EXAMINATION .............................................................. 5

TABLE OF TOTAL ALLEGED VIOLATIONS ................................................................ 6

SUMMARY OF EXAMINATION RESULTS .................................................................... 8

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FOREWORD

This report is written in a “report by exception” format. The report does not

present a comprehensive overview of the subject insurer’s practices. The report

contains a summary of pertinent information about the lines of business examined,

details of the non-compliant or problematic activities that were discovered during the

course of the examination and the insurer’s proposals for correcting the deficiencies.

When a violation that reflects an underpayment to the claimant is discovered and the

insurer corrects the underpayment, the additional amount paid is identified as a

recovery in this report.

While this report contains violations of law that were cited by the examiner,

additional violations of CIC § 790.03 or other laws not cited in this report may also apply

to any or all of the non-compliant or problematic activities that are described herein.

All unacceptable or non-compliant activities may not have been discovered.

Failure to identify, comment upon or criticize non-compliant practices in this state or

other jurisdictions does not constitute acceptance of such practices.

Alleged violations identified in this report, any criticisms of practices and the

Company’s responses, if any, have not undergone a formal administrative or judicial

process.

This report is made available for public inspection and is published on the

California Department of Insurance website (www.insurance.ca.gov) pursuant to

California Insurance Code section 12938(b)(1).

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SCOPE OF THE EXAMINATION

Under the authority granted in Part 2, Chapter 1, Article 4, Sections 730, 733,

and 736, and Article 6.5, Section 790.04 of the California Insurance Code; and Title 10,

Chapter 5, Subchapter 7.5, Section 2695.3(a) of the California Code of Regulations, an

examination was made of the claim handling practices and procedures in California of:

USAA Life Insurance Company NAIC # 69663

Group NAIC # 0200

Hereinafter, the Company listed above also will be referred to individually as

USAA Life, or the Company.

This examination covered the claim handling practices of the aforementioned

Company on Life, Annuity, Hospital Indemnity and Medicare Supplement claims closed

during the period from July 16, 2016 through July 15, 2017. The examination was made

to discover, in general, if these and other operating procedures of the Company

conform to the contractual obligations in the policy forms, the California Insurance Code

(CIC), the California Code of Regulations (CCR) and case law.

To accomplish the foregoing, the examination included:

1. A review of the guidelines, procedures, training plans and forms adopted by

the Company for use in California including any documentation maintained by the

Company in support of positions or interpretations of the California Insurance Code, Fair

Claims Settlement Practices Regulations, and other related statutes, regulations and

case law used by the Company to ensure fair claims settlement practices.

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2. A review of the application of such guidelines, procedures, and forms, by

means of an examination of a sample of individual claim files and related records.

3. A review of the California Department of Insurance’s (CDI) market analysis

results; and if any, a review of consumer complaints and inquiries about these

Companies closed by the CDI during the period July 16, 2016 through July 15, 2017, a

review of previous CDI market conduct claims examination reports on the Company;

and a review of prior CDI enforcement actions.

The review of the sample of individual claim files was conducted at the offices of

the Department of Insurance in Los Angeles, California.

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EXECUTIVE SUMMARY

The Life, Annuity, Hospital Indemnity and Medicare Supplement claims reviewed

were closed from July 16, 2016 through July 15, 2017, referred to as the “review

period”. The examiners randomly selected 154 USAA Life claim files for examination.

The examiners cited 13 alleged claims handling violations of the California Insurance

Code and the California Code of Regulations from this sample file review.

Findings of this examination included the failure to disclose the rate of interest to

the beneficiary.

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DETAILS OF THE CURRENT EXAMINATION

Further details with respect to the examination and alleged violations are

provided in the following tables and summaries:

USAA LIFE SAMPLE FILES REVIEW

LINE OF BUSINESS / CATEGORY CLAIMS IN

REVIEW PERIOD

SAMPLE FILES

REVIEWED

NUMBER OF ALLEGED

VIOLATIONS

Life / Individual Life 349 57 3

Annuities / Individual Annuity 286 25 10

Supplemental Disability / Hospital Indemnity 4 4 0

Medicare Supplement / Individual 500,929 68 0

TOTALS 501,568 154 13

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TABLE OF TOTAL ALLEGED VIOLATIONS

Citation Description of Allegation USAA Life Number of

Alleged Violations

CIC §10172.5(c) *[CIC §790.03(h)(3)]

The Company failed to notify the beneficiary of the specified rate of interest paid on the death benefit.

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CCR §2695.11(b) *[CIC §790.03(h)(3)]

The Company failed to provide an explanation of benefits.

3

CCR §2695.3(a) *[CIC §790.03(h)(3)]

The Company failed to maintain all documents, notes and work papers which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed.

1

CIC §790.03(h)(1) The Company misrepresented to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.

1

CCR §2695.7(g) *[CIC §790.03(h)(5)]

The Company attempted to settle a claim by making a settlement offer that was unreasonably low.

1

Total Number of Alleged Violations 13

*DESCRIPTIONS OF APPLICABLE UNFAIR CLAIMS SETTLEMENT PRACTICES

CIC §790.03(h)(1) The Company misrepresented to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.

CIC §790.03(h)(3) The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.

CIC §790.03(h)(5) The Company failed to effectuate prompt, fair, and equitable settlements of claims in which liability had become reasonably clear.

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TABLE OF ALLEGED VIOLATIONS BY LINE OF BUSINESS

LIFE

USAA Life 2016 Written Premium: $103,315,033

AMOUNT OF RECOVERIES $6.08

NUMBER OF ALLEGED VIOLATIONS

CCR §2695.3(a) [CIC §790.03(h)(3)] 1

CIC §790.03(h)(1) 1

CCR §2695.7(g) [CIC §790.03(h)(5)] 1

SUBTOTAL 33

ANNUITY

USAA Life 2016 Written Premium: $96,986,501

AMOUNT OF RECOVERIES $0

NUMBER OF ALLEGED VIOLATIONS

CIC §10172.5(c) [CIC §790.03(h)(3)] 7

CCR §2695.11(b) [CIC §790.03(h)(3)] 3

SUBTOTAL 10

TOTAL 13

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SUMMARY OF EXAMINATION RESULTS

The following is a brief summary of the criticisms that were developed during the

course of this examination related to the violations alleged in this report.

In response to each criticism, the Company is required to identify remedial or

corrective action that has been or will be taken to correct the deficiency. The Company

is obligated to ensure that compliance is achieved.

Any noncompliant practices identified in this report may extend to other

jurisdictions. The Company should address corrective action for other jurisdictions

when applicable.

Money recovered within the scope of this report was $6.08 as described in

section number 2 below. Pursuant to the findings of the examination as described in

section 2 below, the Company is conducting a closed claims survey. The results of the

survey and additional payments, if any, shall be reported to the Department by end of

First Quarter 2018.

LIFE 1. In one instance, the Company failed to maintain all documents, notes and work papers which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed. In one instance, a status letter was not found in the claim file. The Department alleges this act is in violation of CCR §2695.3(a) and is an unfair practice under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company acknowledges the alleged violation but respectfully disagrees that the missing information rises to the level of a violation of an unfair claims practice under CIC §790.03(h)(3). However, documents, notes and work papers pertinent to the examination including a system generated status letter sent on March 21, 2017 were not provided due to an unintentional oversight. As a result of the examination, the Company is reviewing its procedures and a new vendor relationship to provide for better reporting in the future.

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The Company will determine if the new vendor will be able to more seamlessly provide the necessary related records for the investigation files.

2. In one instance, the Company attempted to settle a claim by making a settlement offer that was unreasonably low. The interest proceeds were underpaid. The Department alleges this act is in violation of CCR §2695.7(g) and is an unfair practice under CIC §790.03(h)(5).

Summary of the Company’s Response: The Company acknowledges that payment was made for less than the calculable amount using the interest rate stated by the Company. As a result of the examination, the Company issued an additional $6.08 in interest to the beneficiary. The Company respectfully disputes that it attempted to settle the claim by making an unreasonably low offer pursuant to CCR §2695.7(g) as the interest paid was in excess of the California statutory interest rate. However, the interest rate paid was not in accordance with the stated contractual rate and as a result of the examination, Management provided coaching to the representative who made the error on October 11, 2017. On October 13, 2017, additional training was delivered to the team regarding the handling of universal life claims where the policy maturity date is in close proximity to the date of death. The Company is also modifying its existing quality assurance program to include quality review of all Universal Life claims when the contract maturity date is within 90 days of the date of death. This new process will be in place in First Quarter 2018. Although the Company believes this instance was a one-time event it will conduct a closed claim survey of Universal Life claims with matured policies over the past three years covering a review period of December 15, 2014 to December 15, 2017. Results of the review will be reported to the Department by the end of the First Quarter 2018.

The Company also respectfully disagrees that the one-off error rises to the level

of a violation of an unfair claims settlement practice under CIC §790.03(h)(5). 3. In one instance, the Company misrepresented to claimants pertinent facts or insurance policy provisions relating to any coverages at issue. The Department alleges this act is in violation of CIC §790.03(h)(1). Summary of the Company’s Response: The Company acknowledges the alleged violation and agrees that the settlement letter dated March 23, 2017 to the beneficiary gave the correct payout amount with incorrect calculations. As a result of the examination, a corrected letter was sent to the beneficiary on September 6, 2017 showing the corrected calculations. In addition, the Company provided coaching to the representative who made the error.

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ANNUITY 4. In seven instances, the Company failed to notify the beneficiary of the specified rate of interest paid on the death benefit. In each instance, the settlement letter on Fixed Annuities did not indicate the interest rate applied to the benefit. The Department alleges these acts are in violation of CIC §10172.5(c) and are unfair practices under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company acknowledges the alleged violations and states that it was paying the contract interest rate, which is explained in the contract and in excess to the state mandated rate. It respectfully disputes that this rises to the level of an unfair practice violation of both CIC §10172.5(c) and CIC §790.03(h)(3). Nonetheless, the Company modified its settlement letter to disclose the interest rate and dates the interest rate was paid. A sample of the proposed revised settlement letter was provided to the Department on December 15, 2017 and will go into production in First Quarter 2018. On or near that date, the Company will provide training to the team regarding the new process and modify its existing quality assurance program to address the change.

5. In three instances, the Company failed to provide a clear explanation of the computation of benefits. The settlement letter on Fixed Annuities in these instances explained the benefits only as the annuity’s “Accumulated Cash Value.” The Department alleges these acts are in violation of CCR §2695.11(b) and are unfair practices under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company acknowledges the alleged violations and states that it was paying the contract interest rate, which is explained in the contract and in excess to the state mandated rate. It respectfully disputes that this rises to the level of an unfair practice violation of both CCR §2695.11(b) and CIC §790.03(h)(3). Nonetheless, the Company modified its settlement letter to disclose the interest rate and dates the interest rate was paid. A sample of the proposed revised settlement letter was provided to the Department on December 15, 2017 and will go into production in First Quarter 2018. On or near that date, the Company will provide training to the team regarding the new process and modify its existing quality assurance program to address the change.