Resources invested in compliance are somewhat like premiums paid for insurance policies—paying upfront today prevents you from having to pay more later.

Executive Summary

Acknowledging successful market conduct exams in the same way that a carrier celebrates its sales wins is one way carriers can spread a compliance culture throughout their organizations to bolster corporate performance and safeguard their reputations. Jerry Shafran, CEO of Compliance Assurance Corp., also recommends elevating the role of the compliance professionals—and recognizing their contributions beyond being naysayers.

Although midsize carriers may need to expend hundreds of thousands of dollars to prepare for market conduct examinations, and larger carriers upward of $1 million for the same activity, the cost of noncompliance is greater.

In 2010, a leading carrier was fined $100 million for underreporting the value of the premiums it sold to customers. Eight years earlier, another carrier was fined $4 billion for unlawful sales practices.

Most typical, though, are smaller fines ranging from $1,500 to $1.5 million. The fines that carriers incur for noncompliance violations related to claims, forms, underwriting or licensing often total millions of dollars and are considerably more than the cost of proactive investment in keeping up with relevant laws and regulations.

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