US postpones regulations to give insurers one year to find and fix Y2K bugs

Industry needs time to eliminate problems

BY RUSS BANHAM

JOURNAL OF COMMERCE SPECIAL

An unusual and unprecedented decision by insurance regulators and U.S. state legislator groups has given the insurance industry a moratorium from new regulations for a full year.

The reason? Insurers need time to prepare their information systems for potential Year 2000 (Y2K) problems.

The millennium bug is set to sting the computers of insurance companies, a data-intensive industry extremely susceptible to Year 2000 programming woes. Insurers are working overtime to prepare their information systems for potential problems and do not want their attention swayed by the programming requirements of new laws.

"The industry is not trying to escape additional regulations, but wants to concentrate the greatest resources possible on Year 2000 readiness," said Robert Zeman, vice president of the legal department at the National Association of Independent Insurers, a Des Plaines, Ill.-based trade group that spearheaded the move for a moratorium.

In September, the organization representing state insurance regulators, the National Association of Insurance Commissioners, voted to refrain from adopting or recommending model laws or regulations that would hinder insurers' efforts to achieve Year 2000 compliance. The moratorium will be in effect from July 1, 1999 to June 30, 2000.

The National Coalition of Insurance Legislators and the National Conference of State Legislators, two organizations representing legislators at the state level, also endorsed the moratorium.

The American Legislative Exchange Council, another legislator group known for its conservatism, may also throw its weight behind the moratorium.

The rationale for the moratorium is to give insurers the time they need to address their Y2K problems.

"Almost any new law involving insurers requires programming changes in their information systems," explained Kathleen Jensen, insurance services counsel to the NAII.

"Say there is a new premium tax in a state. Insurers must then go into every software program that calculates that percentage and make appropriate changes. Instead of having insurers spend their programming time and resources making these kinds of changes, we wanted them to focus first on getting ready for the year 2000. The regulators agreed."

Insurers are ecstatic over the moratorium. "It was exceedingly prudent on the part of public policymakers to recognize that insurance companies need to spend their manpower and financial resources ensuring their Year 2000 readiness and not be distracted by new initiatives requiring significant programming effort," said Linda Kaiser, senior vice president, general counsel and secretary at Reliance Insurance Co. in Philadelphia.

"After the moratorium, any new initiatives under consideration by the policymakers can be set in motion," she said.

Reliance already is highly proactive on the Year 2000 issue, said Ms. Kaiser, a former Pennsylvania insurance commissioner. "We have had a business plan since 1996 addressing compliance," she said.

"We have a Year 2000 program office here with three full-time people focused exclusively on the problem," she said.

"They, and other senior managers in the company, are reviewing and testing our internal operating systems and our mission-critical systems in terms of being able to perform underwriting, pay claims and process premiums. We're also doing appropriate due diligence of our business partners and vendors to determine their Year 2000 readiness."

The moratorium was not a hotly contested issue, Mr. Zeman said.

"We haven't perceived any challenges or opposition. We have made it clear that we don't want NAIC or the other groups to stop making policy," he said. "All we have asked and received is assurance that they will not enact any regulations during the time frame that involve programming dislocations for insurers."

Not everyone supports the moratorium. "You can't put the regulatory process on hold," said J. Robert Hunter, director of insurance at the Washington-based Consumer Federation of America, a consumer organization. "How can they make a commitment like that? What if there is another liability insurance crisis or insurers start pulling out of states like Allstate tried to do in Florida a few years ago? This is absurd," he said.

Mr. Hunter is a former Texas Insurance Commissioner.

"This is typical of my former colleagues to cave in to insurers in a way that appears to be rational," he said. "The bottom line is this is counterproductive and doesn't make sense. You can't suddenly decide to give a 'free pass' to insurers for a year. It is absolutely outrageous." But Ms. Kaiser said the moratorium should not be viewed as putting the regulatory process on hold.

"We're talking about a short delay to help insurers ease the transition to the year 2000," she said. "Should a crisis erupt, I'm sure appropriate measures will be taken by regulators to deal with it. And, from where I sit right now, there doesn't appear to be any impending crisis."

Mr. Zeman said the NAII will work with member companies and lobbyists in every U.S. stage to "bird-dog" the moratorium. "We will watch carefully as laws and regulations are being proposed to make sure that if they have systems implications for insurers they not be put into effect during the this time period," he added.

"We will deal with this on an issue by issue, bill by bill and regulation by regulation basis. If any proposals impose burdens, we will make sure their implementation is put on hold."

http://www.joc.com/issues/981109/i1nsur/e14836.htm

-- Gayla Dunbar (privacy@please.com), November 07, 1998

Answers

Now let me see if I got this right....

The regulators and the industry got together and said "let's not make any new laws for a little while" so the industry can be certainit can survive and be able to serve the community.

Great - good idea.

And the self-proclaimed Consumer Group says they want the ability to make more laws "just in case" they are needed.

Gee, I wonder about that Consumer's group......they (like most in that consumer's protection racket) are so afraid of postponing socialism for a little while that they are willing to condemn the consumers they claim they represent.

And where does his salary come from?

-- Robert A. Cook, P.E. (Kennesaw, GA) (cook.r@csaatl.com), November 07, 1998.