The Maryland agency that regulates the increasingly troubled insurance industry is unable to do its job because budget cuts have left it critically short-staffed, according to an internal briefing memo obtained by The Sun.
With 23 vacant positions -- most of them investigators, examiners and actuaries -- the division has failed to conduct financial audits or comprehensive rate reviews that were either required by law or needed for adequate oversight, Associate Insurance Commissioner Charles Siegel wrote to John A. Donaho, the state's insurance commissioner, in a memo dated Sept. 23.
"We are now in a critical situation," Mr. Siegel's memo said. "We are without the proper funds to give quality review of these rates to both assure they are adequate to prevent future insolvency and that they are not overstating the company's case and charging too much."
In addition, the memo said, the division has been "technically in violation by not performing the audits on all the companies licensed in the state."
With $75 billion in insurance in force in Maryland, the state's Insurance Division has primary responsibility for examining the 100 insurers based here and for helping oversee the other 1,400 companies that operate in Maryland. In addition, the agency handles 125,000 complaints and inquiries each year from consumers.
The travails of the Insurance Division, part of the Department of Licensing and Regulation, are the story of the state budget at large. Maryland is projected to fall $450 million short in its planned general fund budget of $6.5 billion this year, and state departments have been shrinking across the board.
The division's vacancies, mostly the result of a hiring freeze that has left empty desks throughout state government, have come on top of a series of cuts absorbed in the past few years.
The division was originally slated for 17 new positions at the start of fiscal 1991, but budget constraints almost immediately eliminated those jobs as the division lost $800,000 of its $8.8 million appropriation. The division suffered further cuts this fiscal year as its budget fell to $7.9 million and its positions were cut to 190 from 209.
The division has been asked to chop an additional $600,000 from its expenses this year, and the 23 vacancies have lowered its number of workers to 167.
Mr. Donaho, complaining of the squeeze, pointed out that the cuts were occurring at the same time his agency was being forced to increase its duties. He cited a law that took effect in July that requires the division to examine Maryland companies once every three years rather than once every five years.
"The budget and staff is being cut at the same time that the legislature has increased responsibilities," Mr. Donaho said. "What's regulation worth?"
William A. Fogle Jr., the secretary of licensing and regulation, said yesterday that his department was planning further cuts when he submits his fiscal 1993 budget plans to Gov. William Donald Schaefer by the end of next month.
"Wherever I can cut, I'll be cutting, and it's going to be people," Mr. Fogle said. "But if I have to set priorities, my highest priority is going to be to protect the Insurance Division."
But insurance regulators are warning that further cuts -- which are expected -- would be difficult to absorb. "If we get additional cuts," Mr. Siegel said, his division would go to the legislature and ask "what oversight we should stop."