Year 2000

This report discusses the readiness of the insurance industry to meet the Year 2000 date change. GAO determines (1) what state regulators have done to oversee the Year 2000 readiness of the insurance industry, (2) how the regulatory oversight of the insurance industry's Year 2000 readiness compares with the oversight of the banking and securities industries, (3) the current status of the insurance industry's Year 2000 readiness, and (4) the nature and the extent of Year 2000 liability exposures that insurers face and the mitigation efforts taken to address this vulnerability.

GAO noted that: (1) the 17 state insurance regulators GAO visited differed in their approach and level of oversight activity directed to the insurance industry's year 2000 readiness; (2) these state regulators also differed in how they assessed and ranked insurance companies in terms of year 2000 readiness; (3) such variations raise a question about the extent to which states can rely on one another's judgments regarding the preparedness of nondomiciled insurance companies doing business in their states; (4) this question is especially applicable to those states where the level of year 2000 oversight is relatively limited or the criteria for assessing readiness may be considered lax; (5) variations in oversight approaches among state regulators also made it difficult to ascertain the overall status of the insurance industry's year 2000 readiness; (6) regulatory oversight of the insurance industry's year 2000 readiness began later than the oversight of the banking and securities industries; (7) the state insurance regulators GAO visited were less active in their efforts to promote year 2000 readiness and efforts to validate information on the status of companies' readiness; (8) they were also less active in planning for and pursuing formal enforcement actions against companies identified as inadequately preparing for 2000 and at a high risk of not being ready for the millenium change; (9) regulatory information on the year 2000 readiness of the nation's insurance industry, consisting primarily of self-reported information obtained through surveys, does not provide the necessary information to judge whether the industry will be ready for 2000; (10) insurance regulators and other observers GAO contacted generally have a favorable view of the industry's year 2000 readiness; (11) these regulators and industry observers expressed confidence that companies were actively preparing for the year 2000 date change because of competitive pressures and the business need to process date-sensitive information before 2000; (12) the magnitude of insurers' year 2000-related liability exposures cannot be estimated at this time, and the effectiveness of efforts to mitigate these exposures remains uncertain; (13) costs associated with year 2000-related exposures could be substantial for some property-casualty insurers, due to potential claims and legal defense costs; and (14) despite efforts to mitigate potential exposures, the year 2000-related costs that may be incurred by insurers will remain uncertain until key legal issues and actions on pending legislative initiatives are resolved.