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NEW YORK -- A newly proposed receivership law would do a good job of maximizing uniformity and fairness in distributing a failed insurer's assets, according to diverse supporters' preliminary comments.
The Interstate Compact Uniform Receivership Law is designed to protect the interests of policyholders, claimants, creditors and the public by providing a comprehensive plan to maximize the uniformity of laws and foster the efficient administration of receiverships. Streamlining the process should reduce unnecessary litigation and leave more insurer assets to pay claims instead of court costs.
The proposed law, designed primarily to apply to receiverships of U.S.-based insurers, also would establish a system that "equitably apportions any unavoidable loss."
A likely key supporter of the proposed law is the National Conference of Insurance Legislators, which already has scheduled a Nov. 19 hearing to review the measure at a meeting in San Diego, said Robert Mackin, president of Mackin & Co. in Albany, N.Y. Mr. Mackin serves as executive director of NCOIL, which is made up primarily of state legislators serving on insurance-related committees.
"Following the hearing, I look to NCOIL fully supporting the receivership law. The hearing should serve as a launching pad for solid legislative support in statehouses in 1999," Mr. Mackin said.
In addition, a spokeswoman for the Risk & Insurance Management Society Inc. said she is particularly enthusiastic about two provisions: giving policyholders better access to information by creating an indexed depository of court-related records, and requiring a receiver to present a timely distribution plan on which policyholders can comment.
"It's pretty likely that RIMS will endorse it" after it is presented for members' consideration later this month, said Anne Allen, director of government affairs for New York-based RIMS.
If such support grows, the proposed law may be placed on a fast track for state legislative approval next year in Illinois, Michigan and Nebraska -- the three states belonging to the Interstate Insurance Receivership Commission that developed it. Under commission rules, legislative approval in the majority of member states is necessary before the receivership law can go into effect in any state.
"I think this statute is an exemplary model receivership statute," said Peter Gallanis, special deputy receiver for the Illinois Insurance Department and a representative to the commission that unanimously adopted it last week after making some minor editorial changes.
However, the final printed version of the 120-page measure will be reconsidered today, and additional comment allowed during a commission meeting at the National Assn. of Insurance Commissioner's fall quarterly meeting in New York, Mr. Gallanis said.
The receivership commission and its new law, which took 18 months to craft with input from diverse interest groups, had their roots in earlier criticisms made several years ago by Rep. John D. Dingell, D-Mich., about states' inadequate solvency regulation of insurers, said James R. Stinson, chairperson of the Receivership Law Advisory Committee. He is an attorney with Sidley & Austin in Chicago.
In the 1990 congressional report "Failed Promises: Insurance Company Insolvencies," Rep. Dingell's House Oversight and Investigations Subcommittee examined the causes of a string of huge insurer insolvencies in the late 1980s, including those of Mission Insurance Co., Transit Casualty Co. and Integrity Insurance Co.
Rep. Dingell concluded that insurance regulation must be vastly improved to protect policyholders. He later introduced an unsuccessful bill that would have allowed some insurers the option of being regulated by a new federal agency that would set solvency standards.
However, one criticism from Rep. Dingell generally accepted as valid was that a policyholder's rights in an insurer insolvency varied, depending upon the state where the policyholder was located or where the insolvent insurer was based, Mr. Stinson said.
Subsequently, NAIC commissioners from the Midwestern Zone explored the topic with members of the NCOIL, which had drafted a broad Interstate Insurance Protection Compact. Midwest commissioners later pared down that proposal to focus only on receiverships, and from it they developed the interstate compact commission. Individual state legislative action was required to establish the commission, which has run independently since it became operational in 1995.
Overall, regulators found that state liquidation laws were ill-prepared to deal with the complex, multistate receiverships that have occurred in the past 15 years or so, said Mary Cannon Veed, an attorney with Peterson & Ross in Chicago who was one of three "co-reporters" helping draft the law. Resulting problems include unnecessarily delayed claims payments, lack of receiver oversight and general confusion about the rights of various parties in the process.
"Insurance is the business of giving people certainty," Ms. Veed said. "If we have unclear liquidation laws, we not only don't give people certainty, we give them additional uncertainty. We make things worse for them."
Many provisions of the new receivership law proposal are designed to provide certainty, including a measure that satisfies important guaranty association concerns, Mr. Stinson said. Those guaranty association concerns include "Class 1 priority treatment for expenses, an express right to intervene, and strengthened 'early access' provisions," he said.
However, many of those provisions likely will have to be introduced in states as companion legislation, because the interstate compact itself, which established the commission, prohibits promulgation of rules directly relating to guaranty associations.
This prohibition created "a very difficult problem for ourselves," when it came to this law, said Kevin Harris, general counsel for the National Conference of Insurance Guaranty Funds in Indianapolis. Despite that problem, he considers this proposed law as "a very good document" that is "a great improvement over existing model legislation."
In addition, reinsurers were concerned about a claims estimation/
acceleration issue, but it was resolved through "a fair and balanced compromise," said Debra J. Hall, vp and general counsel of the Reinsurance Assn. of America in Washington.
For example, the proposal allows estimation of known claims that are contingent or unliquidated and allows estimation of incurred-but-not-reported claims for limited purposes. However, such estimation may not be used to accelerate reinsurance recoveries, except as part of a court-sanctioned commutation process, Mr. Stinson said.
While the receivership law proposal is garnering popular support, it is uncertain whether the presentation of this draft will encourage more states to join the interstate insurance commission, Mr. Gallanis said.