The recently released legislative audit of the Maryland Insurance Division identifies deep and disturbing deficiencies, but it also illustrates, clearly and compellingly, the troubles created by the funding vacuum that faces Insurance Commissioner John A. Donaho.
This audit casts serious doubts on the agency's ability to detect and monitor at-risk insurers. No formal early-warning guideposts exist to tip off regulators that a company might be heading for trouble. Interim financial reporting is haphazard and poorly documented. Some companies don't submit reports and the agency doesn't get around to reviewing all of those that are turned in. Most of this is due to lack of funds in the agency.
From July 1, 1988, to December 31, 1990, for example, the only reviews logged were for June 30, 1990, quarterly statements. The division could only produce evidence that 81 out of a required 219 companies bothered to submit reports. Of those, six in ten were wrong. In one case, the division projected an $11 million improvement in net income when the company's statement really indicated a projected decline of $1.9 million.