The ELNY debacle — perhaps one of the most egregiously botched insurance rehabilitations in modern history — is not just a black eye for the state of New York, supposedly one of the United States’ gold standard insurance regimes. It is a black eye for state regulation itself, yet another argument to be used by those who favor a federal system to gradually replace the patchwork quilt of regulatory systems that has, time and again, managed to fail the public which it is charged to serve. But these are just bureaucratic failures. The real import of ELNY is the very real and debilitating financial damage the company’s liquidation plan will have on some 1,500 families whose source of income is being cut by as much as 60% under ELNY’s terms of liquidation.
You can read all about the details of the ELNY liquidation in our special investigative feature, “The Complete ELNY Saga: 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Dreams.” The short version is that ELNY was taken into rehabilitation, was subsequently mismanaged by the New York Liquidation Bureau — a rogue agency if ever there was one — and was given the go-ahead to be liquidated back in March of this year. As part of the liquidation, some 1,500 structured settlement annuitants still on ELNY’s books will have the values of their annuities severely reduced. Never mind that these annuities are the sole source of income for a lot of these families, or that the annuities are there because these families suffered a serious injury or loss. The people in ELNY’s book of SSAs who have already suffered the worst are being made, once again, to suffer the worst in what can only be described as a heavy-handed and clumsy effort to square ELNY’s accounts as much as possible while liquidating the company.
Here’s the rub: ELNY has 14 years of operating capital left while it runs off its book of structured settlement annuities. There are far more gentle ways of squaring the company’s accounts — by reducing the cost of living increases in the annuities, for example rather than cutting their present value — than by the draconian methods already used. But these have either been overlooked or rejected.
The New York Liquidation Bureau — which incredibly was given full legal immunity in the liquidation agreement itself — is the cause of all of this mess. It mismanaged and stole from ELNY from Day One, and now it has been given a complete pass on its 21 years of failing to live up to its fiduciary responsibility. Any other agency would have been sued into oblivion at the very least, or facing criminal charges. The NYLB answers to only one person — the superintendent of insurance. And that person is Department of Financial Services head Ben Lawsky.
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Lawsky, by our accounts, is a good man with a hard job, and who inherited a pretty bad situation with the NYLB. By the time he arrived on the scene, the NYLB had pushed ELNY beyond the point of no return. And to Lawsky’s credit, he could have kicked the can down the road on ELNY like so many of his predecessors did. But he took action and tried to fix things with ELNY. His first option was to go to New York insurers and get them to all pay into ELNY’s shortfall of funds so the policyholders could be made whole and still get 100 cents to the dollar on their policies once ELNY was liquidated.
The industry refused, and Lawsky accepted their refusal. And in so doing, the public was failed yet again.