National Association of Insurance Commissioners (NAIC) President and Kansas Insurance Commissioner Kathleen Sebelius told Congress that the American insurance industry is financially able to withstand the pressures created by the Sept. 11 terrorist attacks, and insurance regulators are moving quickly to ensure the insurance system remains strong.
Appearing with New York Superintendent of Insurance Greg Serio before the House Financial Services Committee, Sebelius stated:
“The first responsibility of the nation’s insurance regulators was to find out what happened and determine how it might affect America’s policyholders and insurers. Our second responsibility was to take whatever steps were necessary to ensure the system is functioning smoothly and properly. We have met those responsibilities and done much more to respond to this emergency.”
Sebelius explained how states regulate the insurance industry to ensure funds are available to pay claims: “The state insurance regulatory system provides an extensive and comprehensive framework for ensuring that policyholder premium dollars are invested prudently, and that insurers maintain an appropriate level of additional capital to support those risks that are inherent in the insurance business.”
Sebelius also discussed what happens when there is an insolvency, assuring members that “in circumstances where an insurer is unable to meet its claims obligations, the various state guaranty funds provide the necessary funds to protect consumers.”
Currently, state insurance guaranty funds have the capacity to provide up to $10 billion to compensate American consumers in the event of an insurer insolvency.
In addition to talking about the industry’s financial health, Sebelius briefed the Committee on steps the NAIC is now taking to:
— Assess the solvency impact on the global insurance industry, based on first-hand information from insurers, reinsurers and Lloyd’s of London syndicates.
— Identify legal, financial, policyholder and claims issues stemming from the tragedies.
— Identify specific insurers that may require regulatory surveillance or intervention.
To date, NAIC members have identified 50 U.S. insurance groups, comprising 275 companies, which account for a substantial part of the affected insurance markets in New York, New Jersey and Connecticut. With respect to reinsurance, the project will look at approximately 30 global reinsurance groups, 35 individual companies and 90 syndicates at Lloyd’s of London.
Sebelius also explained how state insurance departments are coordinating disaster response activities to help New York. “We have organized regulator teams to be ready to assist with a flood of consumer complaints or questions, as well as a team to assess and study all the legal issues raised by these events,” Sebelius said. “In addition, we will convene an insurance summit Oct. 23-24 to continue the collaboration with industry, federal regulators and members of Congress.”
In closing, Sebelius indicated that there may be a role for Congress. “We know the insurance industry cannot withstand multiple events of this magnitude without harm to all consumers. For this reason, we encourage Congress to look at proposals so that risk of loss from terrorist activities in the future can be spread as broadly as possible.
“Insurance products are meant to help people and businesses restore order from chaos,” Sebelius continued. “In this time of need, it is the insurance industry that will be called upon to deliver on the promises that it has made. The NAIC and its members plan to work closely with Congress and fellow regulators, as set forth in the Gramm-Leach-Bliley Act, so that the needs of Americans are met in a timely and compassionate way.”
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