I have been thinking about the internal State Farm documents I highlighted in The Internal State Farm Documents Every Roofer, Public Adjuster, and Policyholder Should Read. These documents recently became public in the Oklahoma hail litigation, particularly the executive memorandum and its revealing editorial comments concerning roof replacement rates, claims closed without payment, and whether lower claim payments really demonstrate better claims adjusting. After reading those documents, another question occurred to me that may be just as important as what State Farm was doing. Where were the insurance regulators while all of this was happening, and did they already have these documents?
Oklahoma Insurance Commissioner Glen Mulready has acknowledged that his department has been conducting a market conduct examination involving insurance companies’ wind and hail claims practices for several years. On August 25, 2026, he issued a public statement explaining that the department was reviewing newly released State Farm documents from litigation and would consider them as part of its ongoing examination. The statement read in part:
The Oklahoma Insurance Department is aware of the recent developments in Comanche County District Court involving the release of internal documents related to State Farm’s handling of wind and hail claims.
We are currently reviewing the publicly available materials and will consider any information they contain as we continue our market conduct examination of insurance company claims in Oklahoma.
The Oklahoma Insurance Department has been conducting an independent investigation into insurance industry practices for the past several years, including practices involving the adjustment and payment of homeowners’ claims following severe wind and hail events. That work has been extensive, and we continue to push the independent examiner to complete the report and get it submitted to OID.
That statement caught my attention. If the examination had already been underway for years, why was the department reviewing these documents after they became public through litigation? Had the examiners previously requested and received them directly from State Farm? Did they already possess the underlying management presentations, internal audits, financial measurements, consulting reports, and communications discussing how the company was changing its roof claims practices? Or did policyholder attorneys discover information that the regulators had not independently obtained?
Those are important questions, and the answers should tell us a great deal about how effectively market conduct examinations protect policyholders. For readers unfamiliar with market conduct examinations, these are regulatory investigations intended to determine whether insurance companies comply with the laws governing their treatment of customers. They can examine underwriting, marketing, complaints, policyholder services, and claims practices. The examinations are supposed to look beyond isolated mistakes and determine whether an insurance company has business practices that violate the law or harm consumers.
The National Association of Insurance Commissioners, commonly called the NAIC, publishes a Market Regulation Handbook that provides detailed examination standards and procedures. I went back and reviewed parts of the handbook, and what I found makes the question about Oklahoma’s examination even more interesting.
Claims Standard 5 addresses whether claim files are adequately documented. It specifically identifies claims procedure manuals, electronic records of claims activities, claims training manuals, internal claims audit reports, and claim bulletins as materials examiners should review. The standard also calls for determining whether the documentation supports the ultimate claim decision.
Claims Standard 6 addresses whether claims are properly handled according to policy provisions and applicable laws. Again, the examination checklist identifies claims manuals, training materials, internal audit reports, and claim bulletins. Regulators are not supposed to ignore these materials simply because they concern internal company operations.
Perhaps most relevant to the Oklahoma litigation is Claims Standard 9, which addresses claims denied or closed without payment. It calls for reviewing the insurer’s procedures and determining whether those claim outcomes comply with policy provisions and applicable law.
Now consider the internal State Farm documents discussed in my recent article. Those documents discuss reduced full-roof replacement rates, claims closed without payment, management approval requirements, and concerns raised by State Farm agents and regional leadership. Most interestingly, somebody reviewing an internal memorandum questioned whether the company was treating fewer roof replacements as evidence of better quality without demonstrating that its claim decisions were actually more accurate.
There is another provision that deserves attention. Operations/Management Standard 1 addresses an insurer’s internal audit program. It directs examiners to review audit reports, determine whether those reports provide meaningful information to management, examine how management uses them, and determine whether the company tests the accuracy of its internal statistical data.
If State Farm management was measuring declining roof replacement rates and increasing closed-without-payment claims as favorable performance indicators, wouldn’t an examination of the accuracy and use of those measurements be particularly important?
I would want to know whether State Farm was measuring the number of claims correctly paid in full, whether reinspections revealed underpayments as well as overpayments, and whether the company treated the discovery of underpayments with the same seriousness as the discovery of unnecessary payments.
I have written many times that paying less is not the same as paying accurately. A company can reduce claim payments while becoming less accurate. A legitimate quality-control system must recognize that sometimes the correct adjustment requires paying more money.
The regulatory authority to obtain this information is not limited to the NAIC’s examination checklists. Oklahoma law provides substantial investigative powers. Under 36 O.S. § 309.3, insurance companies must provide examiners access to books, records, documents, and computer recordings relating to the company’s business. The statute also authorizes subpoenas and sworn examinations of witnesses. It directs examiners to observe applicable NAIC examination guidance, subject to the commissioner’s authority to use other appropriate procedures.
The NAIC checklists do not specifically require every executive PowerPoint presentation or consultant’s draft to be obtained in every examination. The examination’s scope matters. But when the subject being investigated is whether an insurance company has systematically changed its claims practices to reduce payments, I would think the documents explaining who developed those practices, why they were adopted, and how management measured their success would be among the most important records to obtain. Otherwise, examiners risk studying the results of the claims process without examining what caused those results.
It would be a little like inspecting a restaurant’s receipts to determine whether the kitchen is sanitary. You might learn quite a bit about the business, but you probably ought to walk into the kitchen.
The Oklahoma examination has also become the subject of disagreement between state officials. On July 27, Attorney General Gentner Drummond publicly demanded the release of the overdue examination report. Commissioner Mulready subsequently explained that the examination remained ongoing and that his department was pressing the independent examiner to complete the report.
I appreciate that complicated examinations take time. But the public should eventually be able to understand whether the examination investigated the corporate claims systems themselves rather than merely sampling individual claim files.
There is another reason this matters beyond Oklahoma. Insurance companies increasingly use consultants, analytics, management dashboards, centralized approval systems, and performance benchmarks to influence claims operations. The individual adjuster may be following procedures designed years earlier by executives and consultants who never personally inspected the damaged property.
Regulators need to understand those systems. If the examination concentrates exclusively on whether the individual adjuster’s file contains the right documentation, it may miss the larger question of whether the corporate process influencing the adjuster’s decision was appropriate in the first place.
I am not suggesting that State Farm’s internal documents conclusively establish improper conduct. State Farm disputes the allegations made in the Oklahoma litigation and maintains that its practices are designed to improve claims accuracy. But an examination should test that explanation against the underlying data rather than simply accept the company’s description of its own objectives.
My hope is that Oklahoma’s examiners requested the original Fire Model Enhancement materials, the Accenture consulting analyses, the executive presentations, the internal audits, the claims performance dashboards, and the records showing how State Farm evaluated both underpayments and overpayments. If they did, I would be interested in knowing what those materials revealed and what conclusions the examiners reached.
If they did not, I would like to understand why. The public deserves a regulatory examination that looks at how claims decisions are made, not simply how those decisions are documented after the fact. The question is especially important when an insurer’s own employees have raised concerns about whether reduced claim payments are being confused with improved claims quality.
I will continue following Oklahoma’s examination and the related litigation because this raises a much larger issue: how insurance regulators investigate modern claims organizations. The State Farm documents have provided an unusual window into the corporate decision-making process. The next question is whether the people charged with protecting insurance consumers were already looking through that window.
And if they were, what did they see?
Thought For The Day
“Our responsibility is to examine the evidence, determine whether insurance laws and regulations have been followed, and take appropriate action when they have not.”
— Oklahoma Insurance Commissioner Glen Mulready
