Insurance proposals criticized Legislator cites need for office to fight insurance fraud

February 07, 1991|By Ross Hetrick | Ross Hetrick,Evening Sun Staff

The Governor's Commission on Insurance has been taken to task by insurance companies and a state legislator for not recommending the creation of a bureau to combat insurance fraud.

"I am very disappointed in the commission's recommendations," said Del. Casper R. Taylor Jr., D-W. Md., chairman of the House of Delegate's Economic Matters Committee. "This is not even a step. Maybe half a step," he said.

Taylor's comments were made yesterday near the end of a 4 1/2 -hour hearing before Taylor's committee on a package of legislative proposals that stem from the work of the gubernatorial commission. The laws were introduced by the administration of Gov. William Donald Schaefer.

While there was opposition to some of the measures, the greatest was generated on the fraud issue.

Instead of recommending a special state bureau to investigate insurance fraud, the governor's commission called for insurance companies to create their own fraud programs, report incidents of fraud to law enforcement authorities and to expand the powers of the state's insurance commissioner to investigate possible instances of fraud.

But Taylor said this was not enough and that a fraud bureau funded by a special assessment on insurance companies could help cut insurance costs.

"To prevent what has be billions and billions in fraud takes big dollars out of the system," Taylor said. He said he didn't understand why the commission did not recommend a fraud bureau.

Taylor said a bill to create a fraud bureau is being drafted and he plans to introduce it soon.

One of the most active insurance companies in dealing with fraud has been the Government Employees Insurance Co., one of the largest automobile insurers in the state. GEICO has found that it saves $7 in fraud losses for every dollar it spends on its special fraud unit, said Andrea M. Covell, vice president and legislative counsel.

However, those efforts are sometimes frustrated by the lack of cooperation the company gets from law enforcement agencies, she said.

Another commission bill that drew fire would require the chief executive officer of a financially troubled insurance company to inform the insurance commissioner if the company was "impaired."

However, insurance representatives wondered what constitutes being impaired and said the public disclosure of such a notification could further worsen the company's financial condition. Delegates also questioned why the state Insurance Division could not determine from financial records filed with the state what financial shape a company was in.

Insurance Commissioner John A. Donaho said financial reports are available to his division, but "there is a possibility of a gap." He said the intent of the law would be to help the company overcome its problems. "A good CEO should come and tell me," Donaho said.

He also said such notification would be confidential.

Other insurance-related laws proposed by the Schaefer administration include:

* The raising of the capital for existing insurance companies offering two lines of insurance from $500,000 to $750,000 after 10 years.

* Increasing the powers of the insurance commissioner to allow him to intervene in the affairs of financially troubled insurance companies at an earlier date.

* Restricting the interaction between an insurance broker and an insurance company that he or she may control.

* Licensing and regulation of managing general agents, who play a large role in running insurance companies but are not now regulated.

Taylor also introduced a bill that would require representatives of insurance companies to actually look at a car before insuring it. That way, non-existent cars would not be insured. While insurance companies applaud that effort, they also offered a host of amendments.

"Everybody wants to go to heaven but nobody wants to die," said Taylor.

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