State insurance watchdog blasted National report cites spotty practices

September 04, 1993|By David Conn | David Conn,Staff Writer

The agency charged with watching over the state's insurance industry has been condemned by a national regulatory group for its inability to supervise Maryland's insurers properly, and has replaced or hired several top officers in an effort to turn the place around.

The Maryland Insurance Administration has overlooked legal and regulatory violations, has failed to follow up after spotting such problems, and generally has done an inadequate job of ensuring the safety and soundness of Maryland insurers, according to a study by the National Association of Insurance Commissioners.

The report's conclusions, cited in a report dated Aug. 13, raised doubts about the agency's ability to supervise an increasingly complex industry.

"We're lucky there hasn't been some catastrophic failures in this state," said Sen. Thomas P. O'Reilly, D-Prince George's, chairman of the Finance Committee.

The report also raises a possibility that other states would be forced to reject the conclusions reached by Maryland's regulators in their company examinations. That could make it difficult for locally based insurers, such as USF&G Corp. and GEICO Corp., to do business out of state.

Several lawmakers and the Schaefer administration were quick to point out that Dwight K. Bartlett III, who became insurance administrator on June 28, inherited the problems cited in the draft report and already has started to improve its performance.

Mr. Bartlett said yesterday that he was remaking the department by replacing several top officials, and using his newly increased budget to step up hiring and training through out the agency.

Mr. Bartlett met Tuesday with a group of Maryland insurance executives to explain the contents of the NAIC's preliminary report, a partial copy of which was obtained by The Sun. A number of insurers have suggested they would move out of Maryland if the state's poor standing threatened their ability to sell insurance in other states. Mr. Bartlett said he assured the CEOs that the Insurance Administration eventually would meet the required standards.

With the changes to the agency that the governor and General Assembly made this year -- including replacing the previous insurance commissioner, boosting the budget by at least 20 percent, and freeing the agency from some of its bureaucratic shackles -- the insurance administration is well on its way toward receiving the NAIC's accreditation by next summer, state officials said.

Gov. William Donald Schaefer fired John A. Donaho as insurance commissioner in April and replaced him two months later with Mr. Bartlett, an actuary and former insurance company president. And in July, the insurance division became the Maryland Insurance Administration, newly independent of the Department of Licensing and Regulation.

Several new officers have come on board in recent weeks. And this week, one of the top agency officials, Charles Siegel, who is responsible for financial examinations, handed in his resignation, effective the end of the month.

"I'm building a new management team," Mr. Bartlett said. "We have done a lot of new hires and we'll continue to do a lot of hiring.

"Now we have a clear track to run on," he added. "So I have no question whatsoever that we're going to be accredited."

But that accreditation, the NAIC's "seal of approval," will not come by Dec. 31 as originally planned because the insurance agency falls short of the national group's standards, Mr. Bartlett confirmed.

Maryland's "laxity" of financial regulation "encourages a company to take liberties with the [legal] requirements, ultimately making the [insurance] commissioner's enforcement responsibilities more difficult and deprives the public of the full protection of the law," the NAIC auditing team said in the report.

Maryland is one of "only a handful" of states that have gone through an initial examination, only to be told that accreditation would be denied, according to an NAIC official who requested anonymity.

So far, 20 states have made the grade, and five or 10 more are likely to pass by Dec. 31, according to Nebraska's director of insurance, William H. McCartney, who chairs the NAIC's accreditation committee.

A failure at this point to be accredited "I don't think . . . should be a black mark against" a state, Mr. McCartney said.

Accreditation is needed for two reasons: to ensure that the state is capable of protecting consumers from unsafe insurers; and to reassure other states that Maryland can adequately supervise the companies that are based here and do business across the nation.

Accredited states have said they would not accept the regulatory examinations of companies from non-accredited states if those exams are started after Jan. 1.

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