JUST LIKE BANK EXAMINATIONS
Safeguarding Your Policies
New Commissioner fells how flie stale
makes close and regular examinations
of insurance companies.
By JOHN F. GOLD
Commissioner of Insurance
The average person has heard much
about bank examiners and their con¬
tinual scrutiny of banking institutions,
but few arc aware of a similar service
provided by the various State Insur¬
ance Departments which maintain a
continual watch upon the activities of
all licensed insurance companies.
The North Carolina Insurance De¬
partment has ten examiners assigned
to the task of performing this service,
both in North Carolina and in other
states. Without any such examinations,
the department would have to rely
solely on information furnished by
companies in their annual statements,
most of which can be verified only at
the home office of the company.
Not Many in U. S.
There are three main phases of
every examination, and although ex¬
aminers arc sometimes referred to
as "auditors,” auditing is actually only
one of three functions performed.
A report of examination will also cover
compliance with the law, and manner
of treatment of policyholders. Since
an experienced auditor or accountant
usually will not be experienced in the
latter subjects, it has been the depart¬
ment’s practice to train all examiners
from the ground up. The examiner
gradually works from the apprentice
stage through various grade levels,
and eventually becomes qualified to
supervise all work performed on an
entire examination. An experienced in¬
surance examiner is thus a type of spe¬
cialist of which there arc only about
400 or so in the entire country.
At present there arc a total of 35
domestic insurance companies, hospi¬
tal associations and fraternal orders in
North Carolina, all of which arc ex¬
amined at least every three years. It is
important to realize that examinations
are made regularly, since the impres¬
sion is often erroneously given, some¬
times through competitive agents, that
the presence of examiners at a com¬
pany indicates that the department has
become alarmed at that company’s
condition. That is, in most instances,
not the case, since regular examina¬
tions are required by law. although
examiners may be sent to any com¬
pany at any time, whether the three-
year period has expired or not. In ad¬
dition to these 35 companies there are
also 32 county farm mutual fire
insurance associations and branches
which arc at present examined an¬
nually. Whenever possible examiners
other than those participating in a pre¬
vious examination are assigned, so
that the benefit of each examiner’s
specialities may eventually be rea¬
lized at each company.
Examinations may last from a mini¬
mum of a day or two, in the case of
some of the county farm mutuals, to
as long as five months, in the case of
our largest company. In North Caro¬
lina the examination period of most
companies lasts front six weeks to
three months. No time limit is ever
set. since a hurried examination is
not in the best interests of the policy-
holders. and if pressed for time, it is
possible that some point might Ik* over¬
looked. which, even if trivial at the
time, might, within another three years
have developed into a serious situa¬
tion. The cost of the examination is
paid by the company that is examined,
and is sufficient to cover the salaries
and expenses of the examiners. By
such an arrangement only those per¬
sons actually interested in the com¬
pany, either as policyholders or stock¬
holders, are paying for the service
rendered, and taxpayers who are not
policyholders have not been obliged
to pay any portion of the expense in¬
curred. No state funds are involved.
Insurance Departments of other
stales conduct similar examinations of
those companies which arc incorpo¬
rated within their jurisdictions. This
docs not mean that each state assumes
sole responsibility for the examination
John F. Gold
of all its companies, excluding repre¬
sentatives of other Insurance Depart¬
ments. Any state has the right to ex¬
amine any company which is licensed
to operate in that state at any time.
In the case of larger companies, es¬
pecially those operating in all or nearly
all states, this would result in endless
confusion, since examiners from all
parts of the country would be com¬
mencing examinations at various times,
and duplicating each other’s work; it
would require a much larger staff than
most departments have available to
cover all desired examinations within
three years.
Reciprocal Agreement
To simplify this procedure, it has
been agreed that the home state shall
supervise regular examinations, with
the assistance of selected examiners
from other states. For this purpose,
the country has been divided into
six zones of eight states each. If any
company to be examined has received
20 per cent of its premium volume,
or as much as a million dollars from
any one zone, an invitation to partici¬
pate must be sent to a commissioner
in that zone who has been designated
as the zone chairman. He then selects
a state to represent all eight stales of
that zone, that state then sending one
examiner to assist the home state.
This system docs not prevent any state
from participating in an examination
THE STATE. FCOBUARV 27. I9S4
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