IMPORANT: Insurance Rule Change Being Considered

State insurance regulators are toying with the idea of lowering the reserves insurance companies would be required to have set aside - to cover things like life insurance and annuity contracts.

Basically, the amount of money they must have on hand to cover their obligations to policyholders.

Insurers claim the current requirements are redundant and overly conservative.

Huh? When you are guaranteeing life insurance contracts and annuity contracts aren't they supposed to be based on conservative projections??

This current economic situation is affecting insurance companies to be sure, and some are in a position of potentially having to sell assets. That is the real issue - not the fact that current reserve requirements are too conservative. Insurers do not want to have to liquidate valuable assets, like real estate holdings.

By lowering the reserves insurance carriers would be required to have to back life and annuity contracts, it would open up a projected $22-$28 billion dollars industrywide, reportedly.

Murphy's Law

Count me as a bit skeptical. But nature has a weird way of filling a void. And maybe call me a bit negative or pessimistic. It's ok.

The moment we reduce the reserve requirements what are the odds that old man murphy slaps us with some odd disease or illness that raises the death toll higher than insurance company projections. What if they run low on cash (because they will spend excess cash - trust me), would they then expect/hope the feds will come to their rescue as happened in the bank and mortgage industry. The feds only have so much money to spend (or print).

Insurers are saying they may have to sell assets if the rules are not changed.

Life is hard sometimes

Ok. So sell that downtown New York building then. Average American's are tightening their belts during this time too. It's ok if you have to tighten your belt. Sell a couple assets.

It is either that or our state regulators agree to lower those reserves and we put ourselves in a position of facing an insurance industry meltdown at the next health or financial calamity.

Call me negative. Call me pessimistic. But I'd like my insurance industry to remain committed to the conservative principles and rules they have lived under for so long. It's become a fairly stable and reliable industry as a result. American's have had very little to gripe about when it comes to insurance companies backing their product.

I'd like to keep it that way.

Gary Brown is principal owner of Choice Insurance of Arizona. He serves Arizona residents for Arizona Auto Insurance, Arizona Homeowner Insurance, and Arizona Life Insurance. Find his website at Arizona Auto Insurance

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