Insurance Companies Gaming the States’ (Flawed) Regulatory System

In September, 2013, New York pulled out of a framework that the States had agreed to try out. Known as “principle-based reserving,” freed insurance actuaries from having to follow statutory requirements in their calculations, allowing the actuaries “to use their own data and assumptions."[1] That compromise has resulted in such a loose framework that it had made the “gamesmanship and abuses” in the industry ever worse, according to Ben Lawsky, the financial services superintendent of New York. A sample of sixteen insurance companies were found to have increased their reserves by a combined total of only $668 million, far short of the $10 billion that would have been required had the companies had to follow the statutory formulae.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.