State insurance regulators nationwide say they need stronger laws and more federal help to handle the sophisticated industry they are charged with overseeing, but oppose efforts to have the federal government take over their duties.
"The problem is too great and danger too imminent, and the states have done too little," Sen. Howard M. Metzenbaum, D-Ohio, said in a speech earlier this year. And like some others in Washington, he wants the federal government to have more authority over the health and conduct of the industry.
As an example of the problem, at least one of the four companies that, according to a federal lawsuit filed last week, are linked to an operation based in Columbia, Md., has been ordered out of more than two dozen states. The lawsuit alleges that thousands of people and millions of dollars have been taken in as the insurers sold fraudulent policies.
Last week, a federal grand jury in Newark, N.J., indicted three Maryland men, Martin A. and Leonard A. Bramson and Warren H. Berkle Jr. on charges stemming from the Columbia-based operation.
Insurance regulation -- ensuring that companies are willing and able to pay claims -- is now left to the states. Financial examinations and market conduct studies are primarily the responsibility of those states in which the insurer resides.
Regulators are expected to support each other.
An organization created by the top regulators in each state, the National Association of Insurance Commissioners, helps coordinate enforcement efforts, state laws and the integration of state and federal oversight.
Regulators recognize the shortcomings in current law. They say there are no statutes dealing with insurance fraud, no guidelines that set strong criminal penalties and no law under which complicated, multi-state schemes can be prosecuted.
The NAIC has asked Congress for a number of stronger laws aimed at strengthening their regulatory powers, including doubling the statute of limitations to 10 years; making it a crime to knowingly file false financial information; and prohibiting the falsification of company records with an intent to defraud.
"The time has clearly come in the insurance industry to establish national guidelines" among the states, Maryland Insurance Commissioner John A. Donaho said. But, he added, "federal regulation is not the answer."
Mr. Donaho called for increasing cooperation among the states, setting minimum financial standards for the industry and requiring that states provide adequate funding to their regulatory agencies.
Confronted with a growing number of insurance fraud cases, Congress is considering stronger measures.
"While much of the basic regulation of the insurance industry is in my view properly left to the states, it is time that we realize, . . . that insurance fraud is rarely any longer localized within the boundaries of a single state," Sen. Sam Nunn, D-Ga., chairman of the Senate Permanent Subcommittee on Investigations, said earlier this year.
A report issued last year by a House subcommittee was particularly harsh on the current regulatory system. "At present, federal criminal enforcement is restricted because plundering an insurance company is not a federal crime," the report said.
The clearest legal remedy for federal law enforcement officials who have uncovered insurance fraud is to charge the insurer with mail and wire fraud, the report found. But federal antifraud laws have a five-year statute of limitations on the crimes, meaning many insurance fraud cases go unprosecuted.
Insurers have little problem delaying the payment of an insurance claim in the courts. By the time it is clear the insurance company had no intention of paying the claim and committed fraud, the statute of limitations has expired in many cases.