Relief Denied For Life Insurers

Industry Must Keep Financial Cushion

A national panel of insurance regulators yesterday voted down a plan that would have propped up life insurers by allowing them to operate with thinner financial cushions.

The life insurance industry had pleaded for the relief, saying some companies need help urgently to weather the economic crisis.

Opponents said the plan would have weakened insurers' ability to keep promises to policyholders and would have made it harder for consumers to know how much confidence to have in any individual insurer.

"This will pull the wool over the eyes of millions of Americans," J. Robert Hunter, a former regulator who now focuses on insurance issues for the Consumer Federation of America, said at a hearing Tuesday on the proposals that comprised the plan.

In effect, the proposals would have served as a cashless bailout. They would have changed the way companies and regulators measure life insurers' financial strength, making them look healthier than they otherwise would appear.

The nearly unanimous vote by leaders of the National Association of Insurance Commissioners marked a sudden turnabout since Tuesday, when an NAIC committee chaired by D.C. Insurance Commissioner Thomas Hampton voted overwhelmingly to support modified versions of several industry proposals.

During yesterday's meeting, which was conducted by phone, some members of NAIC's executive committee said they saw no evidence that insurers face a crisis. "Simply put, the industry has not made a credible case for why we need to make changes on an emergency basis, and why those changes should be limited to the specific proposals made by the industry," NAIC President and New Hampshire Insurance Commissioner Roger Sevigny said in a statement issued after the vote.

The proposals had been on a fast track at the NAIC since the American Council of Life Insurers, an industry lobbying group, submitted them in November. The rejection of the plan yesterday was striking because NAIC officials had devoted considerable time and effort to the matter.

Some regulators, legislators and consumer advocates protested that the NAIC was using a secretive and rushed process to grant the industry's wishes, and they called for a more measured approach. Granting the emergency relief could have damaged the NAIC's credibility and undermined public faith in the industry, critics argued at Tuesday's hearing.

NAIC Vice President and Iowa Insurance Commissioner Susan Voss seemed to address that criticism in a statement after yesterday's vote, saying, "Any future consideration of changes to regulatory requirements will follow the NAIC's open, transparent and deliberative process."

The proposals would have made it easier for companies to meet capital and reserve requirements, which are meant to ensure that insurers have sufficient funds to withstand financial setbacks and pay benefits to policyholders. For example, insurers could have assumed that certain policyholders would live longer, and they could have included in their capital a larger amount of unused tax credits that might ultimately prove worthless.

The ACLI argued that current capital requirements are too conservative. Without relief, ACLI Chairman Pat Baird testified Tuesday, some companies might have immediate difficulty meeting the standards. Failure to do so can trigger government intervention.