October 23, 2000

The Honorable David M. Walker
Comptroller General
U.S. General Accounting Office
441 G Street, NW.
Washington, D.C. 20548

Dear Mr. Walker:

It is my understanding that at its upcoming meeting in December, the National Association of Insurance Commissioners (NAIC) plans to approve model laws that may affect the ability of the states to regulate the safety and soundness of insurance companies. I, therefore, request that the General Accounting Office (GAO) provide me with an assessment of the extent to which actions taken at this meeting will improve safety and soundness regulation at the state level. In particular, I am interested to know whether the NAIC adopts recommendations GAO made in its recent report to me on the insurance fraud case of Martin Frankel.

The title of that report, "Scandal Highlights Need for Strengthened Regulatory Oversight" (GAO/GGD-00-198, September 2000), makes clear that stronger, not weaker, insurance regulation is needed to prevent the insolvencies and consumer harm that occurred in this case. Let me quote from that report:

"The regulatory weaknesses observed from our review of the states’ on-site examinations included the failure to detect the misappropriation of assets, inadequate procedures and practices to verify the legitimacy of the custodian, and inadequate information-sharing of examination concerns to prevent the scam from spreading further .... We found that four completed examinations on the Thunor Trust insurers did not uncover any material weaknesses even though Frankel allegedly embezzled the insurers’ assets shortly after their purchase, prior (emphasis added) to the examinations."

Clearly, an examination that fails to detect the fact that an insurance company no longer has any assets is of less than no value. In the Frankel case, this failure occurred not once, but four different times. Either the states dramatically improve their regulation of insurance companies for safety and soundness, or Congress must put in place a regulatory system that will. It is, therefore, extremely important that the recommendations GAO made in its report be adopted as soon as possible by state insurance regulators and the NAIC.

Thank you for your cooperation with this matter. If you have any questions regarding my request, please contact me or have your staff call Bruce Gwinn of the Commerce Committee Democratic staff at (202) 226-3400.

With every good wish.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER

cc: The Honorable Tom Bliley, Chairman
Committee on Commerce

The Honorable Michael G. Oxley, Chairman
Subcommittee on Finance and Hazardous Materials

The Honorable Edolphus Towns, Ranking Member
Subcommittee on Finance and Hazardous Materials