Ignorance Found In The Insurance Boardroom

She said this picture emerged during a review of how companies are being managed, when it became apparent that many board members did not understand the insurance business.

By example, Ms. Bowler said that some directors did not understand the business differences between personal and commercial insurance lines. And others could not say whether a current information technology system would support a new product, Ms. Bowler told attendees.

In some cases, directors either "completely acquiesced to management or asked perfunctory questions," she said. And, Ms. Bowler added, directors are not focusing enough on statutory accounting and should be since that is the system that triggers regulatory action.

Ms. Bowler said her department is developing a new program aimed at having insurers' boards play a greater role in making sure that insurance companies are financially strong.

Companies will be examined for corporate governance and then ranked by the department in order of work that needs to be done, she explained. That work would be done during a financial examination, she added.

What many board members fail to realize, according to Ms. Bowler, is that if there is not an appropriate accounting, a regulator in any of the 51 jurisdictions can prevent that company from writing business.

In addition to Ms. Bowler, New York Insurance Superintendent Greg Serio and Lawrence Mirel, commissioner of the department of insurance and securities regulation in the District of Columbia, took part in a discussion of regulators' efforts to strengthen insurance regulation even as legal issues and a growing say by federal regulators change how insurance is regulated in the United States.

Ms. Bowler said that corporate governance was a department concern long before highly visible companies such as Enron became the "poster child for bad corporate behavior."

In Massachusetts, four companies have recently been placed in receivership with two hitting the guaranty funds for $90 million–one is now writing business again and one is in runoff, she noted.

The solvency issue was underscored during a presentation by Francine Semaya, an attorney with the New York law firm of Cozen O'Connor.

Guaranty fund assessments for the property-casualty industry have risen from $231.4 million in 1997 to $734.7 million in 2001, she told attendees. Assessments from 1997 through 2001 were a respective $231.4 million; $286.6 million; $234.2 million; $389 million; and $734.7 million, she said.

New York Superintendent of Insurance Greg Serio spoke of efforts to make the state a more conducive environment for drawing insurers including captives. The market is now conducive for drawing captives to New York, a situation that was not the case in 1997 when a captive initiative drew just two captives to the state during the roughly five years that it has been on the books.

More efficient regulation such as work on a National Association of Insurance Commissioners interstate compact is also being advanced, he continued. But such an initiative must be "shoehorned into outdated, anachronistic statutory structures."

If a compact ultimately is not advanced, it will be because "a statutory shift could not be achieved to make it happen," and not because of a lack of effort on the part of regulators, he continued.