Investigators in the multistate market conduct exam of State Farm Mutual Automobile Insurance Co. — an exam called the "largest in scale ever" by one state insurance official — will complete phase I of their audit of the nation's largest auto insurer by the end of December 2000.

Insurance officials from across the nation began their investigation of State Farm on Sept. 18, 2000, following allegations that State Farm routinely uses the services of medical file-review companies for the purpose of seeking to cut or deny Medical Payments or Personal Injury Protection benefits its policyholders seek.

Auditors and investigators from 11 state departments of insurance — Alaska, Arizona, Colorado, Florida, Illinois, Kentucky, Maryland, Missouri, New Jersey, Oklahoma, and Oregon — are currently conducting interviews and reviewing files to get a handle on the scope of the problem, says Maryellen Waggoner, deputy insurance commissioner in Colorado, the lead investigative state.

Waggoner says the team of examiners is reviewing claims files that contain elements of medical reviews State Farm initiated. There are approximately 200,000 to 300,000 potential problem files the examiners must review, Waggoner says.

Many of the interviews that investigators are conducting are of former employees of both medical review companies and State Farm who provided information to NBC's Dateline program, which outlined the allegations against State Farm in July 2000. However, Waggoner says the former employees aren't as forthcoming as they were with NBC. She could not pinpoint the employees' reticence, but she says it could be due to their lawyers instructing them to not say anything for fear of liability. Waggoner could not say how many interviews investigators have conducted.

Phase II in January 2001

The timetable for phase II also depends on the extent of the medical-review problem that investigators find. Since State Farm is picking up the tab for the market conduct exam, but investigators have not yet identified the scope of the problem, the final cost to State Farm is unknown. However, the investigation will cost State Farm an estimated $120,000 per month, Waggoner says.