Summary: The National Association of Insurance Commissioners' (NAIC) evaluates a state's program for regulating insurer solvency about once every five years to determine if it meets the association's minimum standards. The accreditation program has been in place for about 10 years. During that time, NAIC expanded the standards and modified the process for evaluating the adequacy of states' solvency regulation. Weaknesses in solvency regulation in Tennessee, Mississippi, and three other states allowed a $200 million insurance fraud to continue for eight years, resulting in the failure of seven insurance companies. During 2000, both Tennessee and Mississippi underwent accreditation reviews by NAIC and were reaccredited. NAIC has tried to strengthen its accreditation program by adding model laws and regulations to the required standards. It has also revised the way in which accreditation reviews are performed and scored and has improved training for members of review teams. Accreditation reviews done in Tennessee and Mississippi disclosed gaps and weaknesses in the accreditation program. In particular, the program does not cover a key area of solvency regulation--chartering and change in ownership of insurance companies. Oversight of chartering and change in ownership is key to preventing questionable individuals from gaining control of insurance companies. The insurance fraud exposed weaknesses in state regulation and oversight that are not addressed in NAIC's accreditation program. Moreover, GAO found weaknesses in on-site accreditation review procedures, including incomplete analyses of exam information, a questionable scoring methodology that can give misleading results, limited on-site compliance testing, and insufficient flexibility in tailoring reviews to address the most material issues.
