'Laxity' in Regulating Insurers

September 08, 1993

Maryland officials knew the situation in the state's Insurance Division was precarious; they just didn't realize how shaky. Now they do. A national regulatory group has roundly criticized the state, saying it does a woeful job of ensuring the safety and soundness of Maryland insurers.

Yet even before the sweeping criticisms of the National Association of Insurance Commissioners, a housecleaning had begun: There's a new commissioner; the agency has gained its independence; its budget has been sharply boosted and a staff overhaul is under way. By the time NAIC makes its next examination, officials hope to gain the group's stamp of approval.

Ironically, much of the "laxity" the NAIC found in Maryland had been talked about by the prior insurance commissioner, John A. Donaho. But Mr. Donaho was unable to convince Gov. William Donald Schaefer or the legislature that a crisis existed, that his agency was so severely undermanned and under-equipped it could not hope to supervise an increasingly complex industry with 1,500 insurers doing business in Maryland.

Not until this past year did state officials heed Mr. Donaho's warnings. By then, it was clear Maryland couldn't gain NAIC accreditation unless changes were made. Without accreditation, Maryland's 113 locally based insurers -- especially USF&G and Geico Corp. -- run the risk that other states might not accept the insurance division's auditing exams as proof of a company's financial stability. This could cost these companies millions. Some were talking about moving out of Maryland.

So Mr. Donaho won his long struggle for more funds to train a bigger auditing staff and to give the new Maryland Insurance Administration independence from government red tape. But the commissioner's blunt style and other tiffs with legislators and the governor led to his firing in April. The new insurance administrator, Dwight K. Bartlett III, took over in late June and has already started to implement vast changes.

Will this impress the NAIC? State leaders believe so. It is imperative that the insurance administrator have the tools to keep track of the financial health of insurers. That's what the public expects. The governor and the legislature must continue to give Mr. Bartlett their strong support. Otherwise, we're in for a rude awakening when NAIC re-visits the state next year.

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