A recently published study by the A.M. Best Company, titled Best’s Insolvency Study: Property/Casualty U.S. Insurers, 1969-2002, provides further evidence that the national system of state-based insurance regulation has been increasingly effective in protecting policyholders and decreasing the effects of insurer insolvencies—especially over the past 15 years under the National Association of Insurance Commissioners’ (NAIC) Solvency Agenda, according to the NAIC.
New Jersey Insurance Commissioner Holly Bakke, chair of the NAIC Receivership and Insolvency Task Force, stated, “This study demonstrates the success of our national system of state-based insurance regulation. Throughout its pages, the study illustrates how the early intervention of troubled insurance companies by state regulators translates to better protection of policyholders by ensuring their claims are paid.”
“While the report is titled ‘Insolvency Study,’ its repeated references to ‘impairment’ – which A.M. Best defines as ‘the first official action’ by state regulators preventing the insurer from conducting ‘normal insurance operations’- shows this is a study of the increasing effectiveness of regulators intervening earlier on troubled insurers to protect policyholders and the general public,” Bakke added.
“Further, there are likely many ‘impairments’ not covered in the study,” she said. “In many cases, state regulators cause insurers to correct financial problems, and even complete confidential supervisions, ultimately returning an insurer to normal operations. In such instances, the rating agencies may never become aware that ‘official action’ has taken place.”
Bakke further emphasized the states’ commitment to ensuring payment of policyholders’ claims, citing the NAIC’s Financial Regulation Standards and Accreditation Program, which requires that insurance departments have ample statutory and administrative authority to regulate an insurer’s corporate and financial affairs, and that they have the necessary resources to carry out that authority.
“Just as we have high standards for industry, we have high standards for ourselves,” Bakke said. “As such, we are not surprised by the results of a study that shows insurance regulation is best served at the state level.”
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