11-state audit questions Md. insurance regulator's ability to monitor industry

November 19, 1991|By David Conn HC B

A new audit of Maryland's insurance regulator raises serious questions about the agency's ability to detect financially troubled insurance companies and to monitor them.

The report, released yesterday by legislative auditors, also says the Maryland Insurance Division has failed to collect all financial statements required of insurers that do business in Maryland and has failed to review all the reports it has received.

Finally, the audit questions whether the fund that pays consumers when their insurers become insolvent is capable of handling a major insurance company insolvency.

The audit of Maryland's insurance regulator was part of an 11-state effort to determine the quality of the nation's insurance regulatory system. More than 150 property and casualty insurers in the United States have become insolvent since 1969, the state's Department of Fiscal Services noted, and half of those companies went under in the past five years.

So far, Maryland has avoided a major insolvency of the kind that racked California, New York and New Jersey, among others. "We've been able to avert that, but I'm not sure how we've done it," said Gerald W. Martz, the manager for the performance audit of the Insurance Division.

The performance audit follows by two weeks a more limited review of the agency that also found problems with management procedures, the division's record in responding to consumer complaints and its relationship with the Department of Licensing and Regulation, of which the division is a part.

Yesterday's report deals primarily with the division's ability to prevent insurance insolvencies. It found:

* The division has no formal written standards and criteria to serve as an early warning system for financially troubled insurers.

* The division has no criteria to prioritize companies for increased monitoring, or to tell when to require companies to submit more financial reports.

* In 1990, almost 45 percent of the companies required to submit interim reports failed to do so, and the division did no follow-up on them. Only 37 percent of the reports that were submitted ultimately were reviewed. Yet, in one quarter, the division reviewed 84 financial statements from companies that didn't need to submit the reports.

* The division made mistakes in many of the reviews it did conduct.

* The corporations that pay consumers when their insurers become insolvent may not be able to pay all claims in the event of a major insolvency.

In response to the study, Insurance Commissioner John A. Donaho chided the auditors for failing to recognize reforms at the agency in the last year. He said that the division will follow the auditors' recommendations in some cases if the money is available.

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