Regulators Assess Receivership Alternatives

“Alternative mechanisms typically allow for continuous claims payments, or at least orderly claims processing and partial claims payments without interruption,” the subgroup writes. “Alternative mechanisms can cost less than receiverships, thus resulting with maximum dollars paid out to policyholders/claimants. Alternative mechanisms may allow greater flexibility to achieve commercially acceptable results, such as freeing up capital.”

But, without strong regulatory monitoring and controls, there is no guarantee that consumers and other claimants will get the information they need to protect their rights, or that anyone will ensure that “appropriate fairness” takes place, the subgroup writes.

In some cases, for example, “alternative mechanisms for troubled insurers might become a tool for solvent carriers to transfer value away from policyholders,” the subgroup writes.

“Overall, although alternative mechanisms for troubled insurers can provide cost savings or greater efficiency over the current system, these mechanism can also pose unique risks for consumers and require specialized surveillance monitoring, practices, and procedures, particularly where the activities may occur outside of court supervised receivership proceedings,” the subgroup writes. “In this context, regulators are encouraged to consider implementing standards and best practices responsive to these risks in order to preserve important consumer protections, increase transparency, and provide appropriate procedural safeguards.”

Regulators should, for example, ensure that alternative resolution mechanisms place the interests of consumers ahead of other competing interests, the subgroup concludes.