Tighter rules on insurance to be considered

November 15, 1990|By David Conn | David Conn,Annapolis Bureau of The Sun

ANNAPOLIS -- Against a backdrop of bad financial news from USF&G Corp., Maryland's largest insurance company, and a report that raised questions about the insurance industry's financial health, state legislators will weigh tough new insurance regulations.

Under a series of recommendations that will be made to the Governor's Commission on Insurance tomorrow, Maryland insurance companies would have to increase their capital and surplus levels fivefold, and the state insurance commissioner would have broader powers to head off insurer insolvencies, a representative of the commission said yesterday.

The 11-member commission's subcommittee on solvency will present seven recommendations to the full panel when it meets tomorrow morning, said August Alegi, counsel to GEICO Corp., an insurance company whose chairman, William B. Snyder, heads the subcommittee.

At least some of the recommendations are certain to appear before the General Assembly in its 1991 session, said Delegate Casper R. Taylor Jr., D-Allegany, chairman of the House Economic Matters Committee. The committee heard testimony yesterday.

One of the solvency panel's recommendations would raise to $3.25 million the amount of combined capital and surplus that would have to be held by a company that writes only one type, or line, of insurance. Those writing two or more lines would have to hold at least $6.5 million, Mr. Alegi said. The amounts are five times the current requirements.

The panel also will suggest strengthening the state insurance commissioner's hand against companies before they become insolvent, rather than afterward, as is currently the case, Mr. Alegi said.

The other recommendations would strengthen regulations and criminal laws concerning officers and directors of insurance companies and would require the state to do extensive background checks on those seeking to write insurance in Maryland.

Mr. Taylor was skeptical about the chances for passage of some of the recommendations. The plan to raise capital and surplus requirements, for instance, passed the Senate last session but failed to make it through the House Economic Matters Committee.

"Our committee frankly didn't see the rush to be changing the [capital and surplus] numbers that much," Mr. Taylor said. Neither of the two Maryland insurance insolvencies in the last 20 years or so -- Eastern Indemnity Co. of Maryland and Maryland Indemnity -- would have been prevented by such a move, he said.

But Mr. Taylor said the insurance commissioner should be given more authority to supervise insurance companies operating in Maryland. "We can sit here year after year and keep legislating additional regulations," he said, "but the job doesn't get done unless the regulators supervise." He said Insurance Commissioner John A. Donaho is making better supervision his top goal.

The House committee's interest in insurer solvency was piqued by the release of a broadly criticized report on the industry by Public Citizen, a group affiliated with consumer activist Ralph Nader. The report, "Insurance: The Next Industry in Crisis?" suggested that five major insurers, including USF&G Corp., would be in danger of "financial trouble" in a severe economic downturn.

Public Citizen has since dropped Aetna Life & Casualty Co. and ITT's Hartford insurance companies from the list, citing tabulating errors in one of the six tests it used to determine financial stability.

Last week, USF&G announced that it would cut its dividend.

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