What To Do With A Failing Insurer?

By Gary S. Mogel

NU Online News Service, Oct. 15, 4:05 p.m.EDT?An industry conference heard a regulator and aninsurance industry expert voice differing opinions on how to handleinsurers with financial difficulties.

The exchange of views on the role of regulators in insurersolvency monitoring took place during the 2003 Industry Insiders'Forum at the Chartered Property Casualty Underwriters Societyearlier this week in New Orleans.

Fielding a question about why rating agencies usually seem toknow about insurer financial difficulties before regulators do, J.Robert Wooley, insurance commissioner of Louisiana said, "Therating agencies have more resources."

"Also, when a regulator finds out that a company is in trouble,that has to be kept confidential or insolvency will become aself-fulfilling prophecy."

Mr. Wooley added that if the financial difficulty of the insurerwas made public and the prophecy was self-fulfilled, the companieswould complain that they "could have made it" had the insurancedepartment not intervened.

"The public, on the other hand, would say we waited too long.Either way, the commissioner gets second-guessed," he said.

Robert P. Hartwig, senior vice president and chief economist ofthe Insurance Information Institute in New York, countered that"propping up weak insurance companies can do more harm thangood."

Troubled carriers, in his view, should be "quietly euthanized."That way, he said, there aren't years of unpaid claims.

"We have to get rid of the ?you're too big to fail' doctrine,"Mr. Hartwig said.

According to Robert H. Moone, chairman, chief executive andpresident of Columbus, Ohio-based State Auto Insurance Companies,regulators should go beyond standard assessments of insurersolvency. "You have to look at corporate governance," he said."Some insolvencies come from lack of board oversight and badmanagement."

Thomas B. Ahart, president of broker Ahart, Frinzi & Smithin Stewartsville, N.J., brought up the point that agents aresigning up with more insurer solvency rating organizations, hopingto better track the financial health of companies in their office."Some of the strongest companies are now gone"--and agents andbrokers are nervous about that, he said.