Regulators Reconsidering Insurer Relief

Rules for Companies Could Vary From State to State

Insurance regulators from across the country were scrambling yesterday to address a growing threat to insurance companies and the consumers who depend on them.

As the industry's financial condition deteriorates, many companies have asked their home-state regulators for permission to change the way they measure and report their financial strength. Some regulators have expressed a willingness to grant it.

The requests have been pouring in since the National Association of Insurance Commissioners last week rejected the insurance lobby's plea for blanket relief.

The public faces the chaotic prospect that insurance companies could be allowed to operate by different rules, and that rules meant to protect their financial stability could diverge sharply from state to state.

The situation is shaping up as a major challenge to the industry's system of regulation, which is controlled at the state level.

The Consumer Federation of America and the Center for Economic Justice, an advocacy group for poor and minority consumers, yesterday told regulators that granting relief on a case-by-case basis could amount to regulators "anointing winners and losers" and could reward companies that managed their finances poorly at the expense of more successful competitors.

Without objective criteria for granting relief, awarding it on a case-by-case basis "amounts to a political favor" by home-state regulators, according to an e-mail to regulators written by Robert Hunter of the Consumer Federation and Birny Birnbaum of the Center for Economic Justice.

The stakes are high. One big insurer, Allstate, disclosed last week that changes in the way it keeps its books generated an additional $712 million of reported capital.

After a closed conference call yesterday, NAIC held a briefing in which some regulators said that states have always had the power to grant dispensations, and that such exceptions to the rules serve a useful purpose.

"Most of the time it's going to be because the company is troubled in some part of its operation, financially troubled," Pennsylvania Insurance Commissioner Joel Ario said.

"A good financial regulatory system has to deal with the individual circumstances of individual companies," he said.

With its condition deteriorating, the insurance industry has argued that some companies could be forced to shore up their financial strength on highly unfavorable terms unless regulators ease standards governing the amount of capital and reserves they must maintain. The standards are meant to ensure that companies have the ability to cope with unexpected problems while keeping their promises to policyholders.