Newspaper article THE JOURNAL RECORD

New Regulations Designed to Help Determine Healthy Insurance Firms

Newspaper article THE JOURNAL RECORD

New Regulations Designed to Help Determine Healthy Insurance Firms

Article excerpt

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By Eric N. Berg CHICAGO - Amid deepening public concern over the health of insurers, a new regulation now taking effect may help separate the financially strong from the shaky.

The rule will require nearly all insurance companies for the first time to have their financial condition reviewed annually by an actuary - a highly trained industry statistician - to determine whether the insurer has enough money to pay claims and meet other financial obligations. If a company seemed weak, policyholders could get refunds of their unused premiums, and regulators could take remedial action before the insurer became insolvent.

Life insurers already face this requirement, and state regulators are extending the rule to property and casualty insurers, which had been free to set their financial reserves at whatever level they felt appropriate.

The new rule is the latest attempt by insurance regulators to shore up an industry that has been buffeted by slumping commercial real estate values, plummeting prices for ``junk bonds'' and rapidly rising jury awards.

Hard-hit insurers have been failing at an increasing rate, leaving many policyholders without coverage when they made a claim.

Still, critics note that the new rule does not require an insurer to have an independent actuary certify whether its reserves are adequate. In fact, the actuary could be an employee.

While the certification requirement should give consumers extra protection, it may well come at an extra cost.

Right now, only midsized and giant insurers like Aetna, State Farm and Metropolitan Life, employ actuaries full time. Thousands of small companies, many of them family operated, will have to hire outside actuaries. That means their policyholders will probably end up paying that extra cost through higher premiums.

The regulation, which was adopted by the National Association of Insurance Commissioners and cleared by state legislatures where necessary, covers property and casualty companies, which insure against a wide range of s, including theft, fire and vandalism. …

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