New report calls for insurance legislation

A newly issued report by the CNMI Department of Commerce is calling for legislation that local insurers say would safeguard foreign workers against abuse by companies that cannot pay claims on the insurance they sell.

The Commerce report has yet to be released to the public, but a copy obtained by The Saipan Tribune reveals that the department is trying to renew interest among lawmakers in two key items of long sought after legislation, including one that would raise by $75,000 the minimum amount of money insurers must have before they can do business in the Commonwealth.

Increasing this threshold could prevent problems like the many cases in which foreign workers owed money due to surety bonds—insurance employers buy for foreign workers that pays them if the businesses where they work shut down—have gone unpaid because the companies that sold the bonds lack the assets to cover those claims, insurance sector sources say.

In addition, the report calls for legislation expanding the Commonwealth’s rules for reinsurance, a practice that gives financial backing to insurance companies.

Currently, insurance companies must have $25,000 in capital to sell insurance in the Commonwealth, the report says, but Commerce wants that increased to $100,000 to “ensure that sufficient and adequate reserves are maintained by an insurer in the event substantial losses are experienced.

Eli Buenaventura, president of the Northern Marianas Insurance Association, an organization representing insurance companies, said the move to a higher capital threshold is “long overdue.” The legislation could address the problems with surety bonds that foreign workers have faced, he added.

“If this recommendation will materialize, this would mean an additional capital injection of more than $600,000 to the current domestic insurers, assuming they write at least 8 classes of insurance,” he said. “Hopefully, with this change, domestic insurers would be financially solvent to handle their claims.”

However, Sixto Igisomar, one of the insurance association’s directors, noted that a key obstacle to the legislation is enforcing it. Local regulators, he said, suffers from sever staffing shortage that has led to lax regulation. “Who is to say that an insurer is negative in their reserves if no one is looking and there is no regulation that is supposed to penalize the negative reserves?” he asked.

Commerce’s proposal could have a devastating impact on small insurance firms that sell surety bonds, according to a representative of the Oceania Insurance Corporation, which sells some of the bonds.

“This might put those companies out of business,” the representative said, speaking on condition of anonymity. “I’d feel bad for the small companies if this were to happen.”

The department’s report contains the most recent available data on the solvency of the Commonwealth’s insurers. But how closely it reflects current conditions is unclear because the report details data gathered in 2006. A long backlog of insurance company data the department must analyze has prevented it from having current information available, Commerce officials have said. The report, however, appears to suggest that at least a handful of companies in the Commonwealth lack the assets to pay claims on the surety bonds they sell.

Meanwhile, the report urges lawmakers to expand the local insurance commissioner’s authority to regulate reinsurance, the financial backing that insurance companies use to support the policies they sell and protect themselves against risk.

“Current provisions of the Insurance Act relating to reinsurance are very limited,” the report says. “In fact, current provisions only provide for the admission or approval of reinsurers in the CNMI prior to engaging in business.”

The report proposes legislation giving the commissioner the power to require reinsurance companies to file official agreements on the protection they sell to insurers and for the insurance commissioner to oversee those and approve those agreements.

Giving Commerce this added authority could spark some controversy, however. Igisomar, for example, suggested Commerce should have a more limited form of authority over reinsurers.

“What they should review and approve is the financial ability of such reinsurers,” he said. “If they feel that the reinsurer is insufficient, then they should then inform the insurance carrier that the reinsurer is not acceptable.”