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Published: December 2008

NAIC should reject pressure from life insurers

Consumer groups have urged the National Association of Insurance Commissioners (NAIC) to reject life insurance industry proposals to dramatically cut the amount of money that life insurers must set aside to pay promised benefits to policyholders.

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Below is a summarized excerpt of the letter:

In a letter to the NAIC, the Consumer Federation of America (CFA) and the Center for Economic Justice (CEJ) strongly opposed the proposals to weaken capital and reserve requirements for life insurers.  Reserves are the amount held by insurers to pay life insurance and annuity benefits.

"The major investment banks Bear Stearns and Lehman Brothers failed because of weak capital standards," said J. Robert Hunter, Director of Insurance for CFA and former Texas Insurance Commissioner.  "When insurance giant AIG failed, the NAIC and individual state insurance regulators were quick to point out that, because of stronger capital and reserve requirements, AIG's insurance units were financially sound.  Instead, AIG was brought down by unregulated holding company activity," he said.  "It is simply incomprehensible that state regulators now want to weaken the very standards they trumpeted just a few short weeks ago. State regulators should be ashamed of themselves for putting industry interests so far ahead of the interests of consumers," said Hunter.

"It is an insult to America's hard-pressed consumers for the NAIC to jump through hoops to take emergency action on a request by industry for weakened capital and reserve requirements after the NAIC has refused to help consumers suffering from the financial and economic meltdown," said Birny Birnbaum, Executive Director of CEJ and former Chief Economist of the Texas Insurance Department.  "Despite huge increases in unemployment, mortgage meltdowns and other financial stress on consumers, the NAIC has refused to rein in the abuses of insurance credit scoring during this hard economic period, with the result that, as credit scores deteriorate causing more and more consumers' insurance prices to rise, these consumers are forced to go uninsured."

CFA and CEJ pointed out that the regulators had provided no explanation for why the changes were needed, why they had to be done on an emergency basis, and why rating agencies would believe that these changes would make life insurers stronger financially.  The groups demanded that the NAIC hold a public meeting at which regulators answer key questions about the proposals, including:

• Why are the actions to weaken capital and reserve requirements necessary?  Are so many life insurers in a very weak financial condition that massive insolvency is likely without the proposed actions?
• Why must the NAIC act on the industry proposals in an emergency manner?
• How will consumers be informed of the weaker protections they will have in the future?
• How will the proposals, if adopted, affect policyholders overall and especially the policyholders of individual companies that will be able to reduce the capital and reserves they have on hand?

For More Information

Consumer Federation of America and the Center for Economic Justice

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Consumer Protection   ♦   Insurance   ♦