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Dingell prepares to toughen insurance regulation.

by Mark L. Schussel The House Subcommittee on Oversight and Investigations intends to draft legislation addressing insurance company insolvency, according to the committee's counsel.

Speaking at a joint meeting of the American Insurance Association, Insurance Information Institute and Insurance Services Office in New York last month, John Chesson briefly discussed six areas of legislation the committee is pondering, the most sweeping of which is regulation of the reinsurance and surplus lines markets. "These are in effect unregulated markets, international in scope," he explained.

Mr. Chesson said the committee, which is headed by Rep. John Dingell, D-MI, will consider creating standards for the licensing, capitalization and operations of insurers, as well as ways to monitor their impact and to better enforce regulations. In addition, he said federal criminal sanctions will be considered for those who allude insurers.

The emphasis on regulation, according to Mr. Chesson, comes from the committee's belief that "In large part the states have not enforced their own rules." As a result, Rep. Dingell will seek a national system of insurance regulation involving the states, which Mr. Chesson differentiated from federal regulation. "I think you might see some sort of federal empowerment as opposed to a direct federal hand," he said. But if federal regulation is necessary, Rep. Dingell would support such a move, he added.

North Dakota Insurance Commissioner Earl Pomeroy, former president of the National Association of Insurance Commissioners, attacked Mr. Chesson's comments. "If the state regulator is responsible for premiums but not for solvency, you will have a disaster," he said.

Other speakers questioned all the worry over insurers, as did a report released during the meeting. According to the economic analysis prepared for Ill by financial industry consultant Orin Kramer, under even the most adverse economic conditions, the insolvency of a major property/casualty insurer is "extremely improbable" and an industry-wide solvency crisis is virtually inconceivable."

"The problem has been blown out of proportion," agreed Arthur Snyder, chairman of A.M. Best Co. Insolvent companies represent "a minor portion of the total industry."

He explained that during the last 20 years only 365 insurers went insolvent. During the first 10 years of that period, on average, there were only 10 insolvencies per year, representing one-third of 1 percent of insurers. During the last decade, the annual average was 22 or 23, or two-thirds of 1 percent of insurers. In many cases, the insolvencies involved relatively small and young stock companies with unusually high net premium growth and a domestication in one of six states.

Mr. Chesson, however, said, "You buy a policy from a company, not from an industry."
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Title Annotation:John Dingell
Author:Schussel, Mark L.
Publication:Risk Management
Date:Feb 1, 1991
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