Stricter controls urged for insurers House panel hears insurance report

November 15, 1990|By Ross Hetrick | Ross Hetrick,Evening Sun Staff

With concerns growing about the financial health of the insurance industry, a committee of the Governor's Commission on Insurance is urging that the state strengthen its regulation of insurance solvency.

The recommendations were revealed yesterday at a hearing before the House of Delegates' Economic Matters Committee, which heard testimony about insurance solvency issues.

The proposed changes include:

* Adoption of criminal sanctions against insurance company officials who do not report the insolvency of a company.

* More stringent regulation of officers and directors of insurance companies.

* Passage of a bill by the General Assembly that would increase by five times the existing capital and reserve requirements. This would increase the requirements to $3.25 million for a company with one line of insurance or $6.5 million for two or more lines.

* Accreditation of the state Insurance Division solvency regulatory operation by the National Association of Insurance Commissioners.

* Establishment of a conservatorship procedure that would allow the Insurance Division to intervene earlier in the financial affairs of insurance companies.

* Adoption of a policy by the Insurance Division of being against "unsupported rate rollbacks," such as those mandated in California by Proposition 103.

August P. Alegi, group vice president for GEICO Corp., one of the largest insurance companies based in Maryland, described the recommendations to the lawmakers. He was representing William B. Snyder, GEICO's chairman and chief executive officer, who is chairman of the commission's solvency committee.

The proposed changes will be presented to the full insurance commission on Friday for its consideration, Alegi said. The insurance commission was appointed by Gov. William Donald Schaefer in April to make recommendations for the 1991 General Assembly that begins in January.

Despite the push for stronger solvency regulations, there is no problem with insurance company solvency in Maryland, Alegi said. There have been only two insurance insolvencies in recent history. He said one a few years ago stemmed from fraud and another 20 years ago involved a small company that sold auto insurance to high-risk drivers.

To become accredited by the NAIC, the state Insurance Division would need about another $1 million in funding for increased staffing and automation of operations, Insurance Commissioner John A. Donaho told the legislative committee.

Including that funding, Donaho will ask the legislature to boost his agency's budget from $8.7 million this fiscal year to $13 for the fiscal year that starts on July 1, 1991.

In the wake of the savings and loan crisis and increasing problems among commercial banks, more attention has been focused on the financial health of the nation's insurance industry. Public Citizen, a group founded by Ralph Nader, created a storm of controversy last month when it said five national insurance companies are so financially shaky that they could become insolvent in a severe economic downtown.

One of the companies cited by Public Citizen was USF&G Corp., the giant Baltimore-based insurance company. While the company lambasted the report, concerns about the company were heightened when it announced last week that its chairman, Jack Moseley, was resigning and it cut its dividend, to $1 a share annually from $2.92.

John A. Andryszak, USF&G vice president for government and industry affairs, said the two events are not related and that the company is in sound financial shape.

"USF&G is not on the brink of insolvency. It will not be sold, bought or merged," Andryszak told the lawmakers.

While he said the Public Citizen report was erroneous and poorly done, it did frighten customers of the company. "We had people call and cancel," Andryszak said. "They said Ralph Nader said it, so it must be true. . . . People believe Ralph Nader, but this time he led them astray."

Debra T. Ballen, vice president of policy development and research for the American Insurance Association, also attacked the recent report. "The Public Citizen report is irresponsible and erroneous and should be rejected by those with a real interest in improving insurer solvency," she said.

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