The insurance industry may be dragging its feet in preparation for Y2K. A survey by the Florida-based Weiss Ratings, Inc. shows that 13 percent of U.S. insurers and HMOs have made “inadequate progress” in preparing for the possible ramifications of the Y2K computer bug.
Of 1,069 insurance companies and HMOs queried, 9 percent were assigned a grade of “below average,” while 4 percent were rated “low.” Also, 20 percent of the companies surveyed received a designation of “high” progress and 67 percent rated “average,” based on guidelines set by the National Association of Insurance Commissioners (NAIC).
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Weiss Ratings, Inc. publishes financial safety and Y2K readiness ratings on insurers, HMOs, banks and S&Ls. The company is the only major rating agency that receives no compensation from the companies it rates.
The Weiss survey also suggests that if the insurers were held to the standards imposed upon banks, the results would be even more damning.
“If we assume that the 1,069 responding insurers are representative of the overall industry, we’d have to conclude that approximately 730 insurers are behind schedule,” said Martin Weiss, chairman of Weiss Ratings. “But, given the natural tendency of lagging institutions to be less willing to respond to our Y2K surveys, I estimate that the actual number of insurers behind schedule could be well over a thousand. Given that the NAIC’s standards are looser than those being applied to the banking industry, it is worrisome to see this many insurers still behind schedule.”
Weiss also points out that through March 31, 1999, the NAIC had essentially mirrored the guidelines established by the Federal Financial Institutions Examination Council (FFIEC) for the banking industry. But as of June 30, 1999, the NAIC diverged from the banking guidelines, stating that “all mission critical systems should be in substantial compliance.” This said Weiss, contrasts sharply with the FFIEC’s statement that “testing of mission critical systems should be complete.”
This latest survey was mailed on June 30 to 5,654 insurance companies and HMOs. It asked 14 questions about each company’s timeline for completing various milestones in the Y2K testing process. Weiss evaluated completion dates for critical tasks, using standards established in 1998 by the NAIC as a reference point.
Among the companies receiving a “low” rating were Anthem Insurance Companies, of Indiana and the Provident Mutual Life Insurance Company based in Pennsylvania. Massachusetts Mutual Life Insurance was among those receiving a “high” grade.
Weiss has Y2K ratings for nearly 400 insurers licensed to do business in Rhode Island. Just three of those, however, – Independence Life & Annuity Co., Liberty Insurance Corp., and Union Insurance Company of Providence – are listed as being headquartered in Rhode Island. All three received “average” ratings for their Y2K preparedness.
Other prominent insurers licensed in Rhode Island and their rating include: All State Insurance Co., “average”; Anthem Alliance Health Insurance Co., “below average”; Fidelity Investments Life Insurance Co., “below average”; John Hancock Mutual Life Insurance Co., “average”; Massachusetts Mutual Life Insurance Co., “high”; Nationwide Life Insurance Co., “high”; Northwestern Mutual Life Insurance Co., “average”; and Wausau Business Insurance Co., “average.”
“I’m disappointed in the insurance regulators for their failure to create clear guidelines outlining their expectations,” Weiss said.
Weiss said it is hard enough as it is for consumers and investors to get their hands on a company’s expected completion dates, but that a lack of clear benchmarks for those dates makes it even more difficult.
“It represents a tacit admission that the insurance industry as a whole is behind the banking industry in Y2K preparations,” he said.
But some insurers believe had they been queried by Weiss, they would have received a “high” rating. In fact, they believe they are well armed to do battle with a Y2K bug.
Joe Madden, director of public relations and community affairs at MetLife Auto & Home in Warwick, said the company – which was not part of the Weiss survey — has worked hard to prepare itself for Y2K.
“We’re all set,” said Madden. “We have converted, tested and certified as Year 2000 compatible all of our business critical applications.”
One insurance industry expert said he was surprised by the Weiss findings because the large insurance companies have such sophisticated computer systems, they “have to have a handle on Y2K.” The smaller agencies, he said, may run into trouble not because they are caught off guard by Y2K, but because they simply did not have the money to invest in preparing for the problem properly.
But some have invested the money – and are enjoying the benefits. Rick Bessette, who owns the Bessette Insurance Agency in Portsmouth, purchased all new systems and software as of May of 1999.
“We had a network guy come in here for about two weeks,” Bessette said. “We did it all new, for about $30,000. So I should be good for ten yearsAs for Y2K, we should be fine.”
