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Malone: The Current Oversight System Works

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New York

State insurance regulation is here to stay, an investment banker says.

Elizabeth Malone, a senior vice president at Wunderlich Securities Inc., Memphis, Tenn., talked about the future of the insurance regulatory sysem here this week at a conference sponsored the New York Society of Securities Analysts, New York.

Malone, who once worked for the National Association of Insurance Commissioners, Kansas City, Mo., noted that many of the arguments now being made in favor of federal regulation of insurance were made in 1991.

The states and the NAIC responded by creating the risk-based capital ratio and a national insurance department accreditation program, Malone said.

The initiatives helped standardize regulation and created indicators to signal when regulators would step in to oversee troubled companies, Malone said.

Malone said she did not think the intervention levels were particularly conservative when they were established.

Today, however, a combination of new accounting rules and the NAIC requirements, may be making reserving requirements too high, Malone said.

Now that the NAIC has decided against immediate implementation of a capital and surplus rules change proposal submitted by the American Council of Life Insurers, Washington, insurers are going to lobby state by state in an effort to ease those requirements, Malone predicted.

States are going to fight to maintain control of regulation, because of “the dynamics of regulation, which offers important leverage points for governors,” Malone said.

If states lose control over insurance regulation, “governors could lose some of their leverage with some of the richest lobbyists in the country,” Malone said. “Money talks.”

State regulation is effective, Malone added.

Even in the worst of times, only 3% of insurers fail, because state regulators either put troubled companies in rehabilitation or liquidation, Malone said.


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