December 1, 2000
The Honorable David M. Walker Dear Mr. Walker: My longstanding concern about the deficiencies of state insurance regulation has been heightened in recent months. The Frankel episode, the regulatory failures that allowed it, and the problematic regulatory responses subsequent to the scandal, have all undermined confidence in state regulation of insurance. Either the states dramatically improve insurance regulation, or Congress must put in place a regulatory system that will. On the one hand, the General Accounting Office (GAO) has reported to me concerning the failure of five state insurance departments to detect the fraudulent activities of Martin Frankel over a nine year period. On four different occasions, state insurance regulators even failed to detect that Frankel-controlled insurance companies had been robbed of their assets. Regulatory failures in the Frankel matter led the National Association of Insurance Commissioners (NAIC) to suspend its accreditation of the Insurance Division of the Tennessee Department of Commerce and Insurance (hereafter referred to as the Tennessee Insurance Department) in March of this year. On the other hand, I am greatly concerned that the NAIC now appears to be more interested in appeasing industry demands for less regulation and fending off calls for a single federal regulator, than in strengthening insurance regulation to prevent insolvencies and the kind of harm to policyholders and beneficiaries that occurred in the Frankel case. For example, I understand certain top officials were replaced in Tennessee’s Insurance Department following the Frankel fraud scandal. However, I am not aware what, if any, statutory and administrative policies or procedures the NAIC has required Tennessee to adopt in order to address its regulatory deficiencies that occurred in this case. Nevertheless, it is my understanding that the NAIC reinstated its accreditation of the Tennessee Insurance Department in September of this year. I ask the GAO to tell me what Tennessee did to justify the NAIC reinstating its accreditation and what parties sought, and under what basis, to give Tennessee its accreditation back only six months after having taken it away. I also want to know whether, as of September of this year, the Tennessee Insurance Department had taken the actions recommended by the GAO to address the problems identified in its investigation of the Frankel matter, "Scandal Highlights Need for Strengthened Regulatory Oversight" (GAO/GGD-00-198, September 2000). As you know, I have already requested that the GAO report concerning actions the NAIC takes at its upcoming national meeting that affect the ability of the states to protect policyholders and beneficiaries and to ensure the safety and soundness of insurance companies. As part of that report, I ask that the GAO also include the information I am requesting in this letter concerning the NAIC’s re-accreditation of the Tennessee Insurance Department. Thank you for your cooperation. 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 cc: The Honorable Tom Bliley, Chairman The Honorable Michael G. Oxley, Chairman The Honorable Edolphus Towns, Ranking Member | |
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