State Insurance Regulators Face Challenges in Determining Industry Readiness
GGD-99-87: Published: Apr 30, 1999. Publicly Released: May 19, 1999.
- Full Report:
Pursuant to a congressional request, GAO reviewed the readiness of the insurance industry to meet the year 2000 date change, focusing on: (1) what state regulators were doing to oversee the year 2000 readiness of the insurance industry; (2) how the regulatory oversight of the insurance industry's year 2000 readiness compared with the oversight of the banking and securities industries; (3) the status of the insurance industry's year 2000 readiness; and (4) the nature and extent of year 2000 liability exposures that insurers face and the mitigation efforts taken to address such exposures.
GAO noted that: (1) the 17 state insurance regulators GAO visited differed in their approach and level of oversight activity directed to the insurance industry's year 2000 readiness; (2) these state regulators also differed in how they assessed and ranked insurance companies in terms of year 2000 readiness; (3) such variations raise a question about the extent to which states can rely on one another's judgments regarding the preparedness of nondomiciled insurance companies doing business in their states; (4) this question is especially applicable to those states where the level of year 2000 oversight is relatively limited or the criteria for assessing readiness may be considered lax; (5) variations in oversight approaches among state regulators also made it difficult to ascertain the overall status of the insurance industry's year 2000 readiness; (6) regulatory oversight of the insurance industry's year 2000 readiness began later than the oversight of the banking and securities industries; (7) the state insurance regulators GAO visited were less active in their efforts to promote year 2000 readiness and efforts to validate information on the status of companies' readiness; (8) they were also less active in planning for and pursuing formal enforcement actions against companies identified as inadequately preparing for 2000 and at a high risk of not being ready for the millenium change; (9) regulatory information on the year 2000 readiness of the nation's insurance industry, consisting primarily of self-reported information obtained through surveys, does not provide the necessary information to judge whether the industry will be ready for 2000; (10) insurance regulators and other observers GAO contacted generally have a favorable view of the industry's year 2000 readiness; (11) these regulators and industry observers expressed confidence that companies were actively preparing for the year 2000 date change because of competitive pressures and the business need to process date-sensitive information before 2000; (12) the magnitude of insurers' year 2000-related liability exposures cannot be estimated at this time, and the effectiveness of efforts to mitigate these exposures remains uncertain; (13) costs associated with year 2000-related exposures could be substantial for some property-casualty insurers, due to potential claims and legal defense costs; and (14) despite efforts to mitigate potential exposures, the year 2000-related costs that may be incurred by insurers will remain uncertain until key legal issues and actions on pending legislative initiatives are resolved.