March 4, 2014
OLYMPIA, Wash. – Insurance legislation initially designed to help protect consumers from Ponzi schemes and financial meltdowns has been gutted to the point that potential bankruptcies would remain hidden from the public in Washington state.
The amendments to Substitute House Bill 2461 could also add millions in extra costs to insurance companies in Washington by jeopardizing accreditation. This could result in additional financial examination fees from other states that would eventually be passed on to consumers through higher premiums.
The proposed amendments by lobbyists for Premera Blue Cross would prevent Washington from joining 25 other states that have enacted a national model for protecting consumers.
The proposed model legislation has been developed by the National Association of Insurance Commissioners (NAIC), which works in collaboration with the insurance industry, government and the public to promote transparent business dealings to help protect consumers.
The NAIC developed the model after the financial collapse and subsequent taxpayer bailout in 2008 of the multinational corporation American International Group, or AIG. The insurance industry sought the model legislation as additional protection against extremely risky and sometimes unknown financial activities.
After working for several months with the interested parties, Insurance Commissioner Mike Kreidler proposed the model legislation for Washington at the start of the current legislative session. Referred to as the holding company act, the proposal would allow Kreidler's office to notify policyholders, shareholders and the public of an insurance holding company's potential bankruptcy filing.
In 2003, Kreidler’s office took action to protect the 35,000 policyholders of Western United Spokane, which sold life insurance and was a subsidiary of Metropolitan Mortgage & Security Co. Kreidler’s office had authority to review Western United, alerted policyholders and took over temporary administrative supervision of the firm.
If the currently revised bill language were to take effect, Kreidler’s office would be prevented from notifying policyholders about threatening financial activity by a holding company.
Metropolitan Mortgage engaged in a Ponzi scheme of selling high-risk unsecured financial products to about 10,000 investors who lost a combined $460 million. Metropolitan often tapped Western United funds to make payments on its ruse.
Metropolitan eventually declared bankruptcy. Investors received only cents on the dollar for their investments.
“We cannot take the risk of gutting the model act,” Kreidler said. “The amended language prevents our ability to give notice and release holding company information that is in the best interest of shareholders, policyholders and the public. As it stands now, we would never be able to release any information.”
Kreidler's office is a member of the NAIC. His office regulates insurance companies in Washington, including regular inspection of their financial stability.