State insurance regulators rapped by legislators Expenditures, math errors are criticized.

November 21, 1991|By Ross Hetrick | Ross Hetrick,Evening Sun Staff

The Maryland Insurance Division has come under fire from state legislators reacting to a recent audit that detailed the agency's management deficiencies.

At a joint hearing yesterday of the House Appropriations subcommittee on law enforcement and transportation and the Economics Matters Committee, panel members peppered insurance regulators with questions about using scarce state funds for studies involving no-fault insurance and about mistakes in mathematics made by some regulators.

At the end of the two-hour hearing in Annapolis, Del. Timothy F. Maloney, D-Prince George's, subcommittee chairman, said he would support increased funding for the division but only with the proviso that "fundamental" management problems be addressed.

The focus of the hearing was an audit of the agency conducted by the state Division of Audits in connection with a review of the operations of insurance regulators in 11 states.

Some of the problems found by auditors were:

* The Insurance Division lacked written standards and criteria to provide early warnings of financial problems to companies it regulated.

* Of the 219 companies that had to report on a quarterly basis because the Insurance Division was concerned about their solvency, only 81 were reviewed. Of 10 reports examined by auditors, six had errors. One of the reports included the finding that a company's net income would improve by $11.2 million when the statement actually indicated a projected decline of $2 million.

* Of the approximately 1,400 annual statements filed with the division, there was no indication that preliminary audits of 483 had been conducted.

Many of the recommendations could be implemented without additional funds, said Anthony J. Verdecchia, a legislative auditor. "I think they need, for starters, to articulate standards," he told lawmakers.

Charles Siegel, associate commissioner of the Insurance Division, said the agency was implementing some of the recommendations made by auditors but was hampered by a shortage of funds that prevents continued computerization of its operations.

While many insurance companies are not reviewed by the division, major Maryland insurers are tracked carefully as are out-of-state companies with major operations in the state, Siegel said.

Siegel said the financial information from a national collection agency to get early warnings of solvency problems.

The drafting of standards for conducting financial audits will be completed on Dec. 2, he said. Previously, the division had informal standards based on nationally accepted procedures.

The math errors found by auditors were caused by a system under which regulators have to copy figures from one page to another, then add them with a calculator. "It begs for error," Siegel said.

To improve the system, Siegel said the agency needs an additional $150,000 annually to hire computer programmers.

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