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NEW YORK-Insurance regulation has made considerable strides over the past five years but it will have to improve even more to keep pace with changes in the industry, says New York's former insurance superintendent.

Future industry developments will include fundamental changes in insurance, such as closer links between banks and insurance, that will test the ability of insurance regulators to adapt, said Edward J. Muhl, who resigned as New York insurance super intendent last month.

"It will take a very flexible regulator to deal with those things going forward," he said.

It was flexibility and a willingness to make changes in the New York department that helped Mr. Muhl deal with several problems while in office, he said at a meeting hosted by New York law firm Stroock & Stroock & Lavan late last month.

Mr. Muhl left the superintendent's post on Dec. 30 to become executive vp and a member of the management board at Peterson Consulting L.L.C., an international consulting firm (BI, Dec. 16, 1996).

When he was appointed insurance superintendent by Gov. George Pataki in late 1994, Mr. Muhl found a department with many dedicated staff who had rela tively little authority.

Consequently, Mr. Muhl decided to decentralize much of the decision making at the department and he "empowered the bureau chiefs," he said."There was absolutely no reason why these folk should not have authority to make decisions," he said.

At the same time, the number of deputy superintendents was cut to four from nine as Mr. Muhl sought to make the department less bureaucratic.

After re vising the structure of the department, the New York insurance regulations themselves needed to be radically changed, Mr. Muhl said.

"We had 150 regulations in New York and some of them were a monster size; a couple of them were ov er 125 pages long," he said.

Each of the regulations was reviewed in turn and, as a result, 35 regulations were rescinded, he said. "They didn't do anything in particular for consumers, solvency or the insurance industry in New Yo rk," he said.

Additionally, another 85 regulations were modified or are in the process of being modified, Mr. Muhl said.

"We brought the New York Insurance Department into a much more modern era," he said.

Mr. Muhl said another exa mple of how he focused on simplifying regulations and concentrated on blending the interests of insurers and consumers is the rewriting of section 4228 of the New York insurance code.

Section 4228 deals with life insurance company e xpenses and agent compensation. The law has strict limits on how insurers can compensate agents and was burdensome to comply with, Mr. Muhl said.

Pending legislation will greatly simplify section 4228, he said.

In addition to internal changes, the New York Insurance Department also had many external problems to deal with, Mr. Muhl said.

One of the biggest problems, he said, was the near demise of Lloyd's of London.

"Lloyd's presented a very interesting experience. If it was not managed carefully and a successful solution was not found, the insurance world would have changed dramatically and it would have changed over-night," Mr. Muhl said.

The inability of U.S. insurers to fully recover reinsurance payments from Lloyd's could have led to the collapse of 51 insurers in New York state alone, he said.

As the Lloyd's American Trust Funds were deposited in New York, the state's Insurance Department played an important role in resolving Lloyd's problems in the United States, Mr. Muhl said.