13 Percent Of US Insurers Behind Schedule In Preparing For Y2K

EDP Weekly's IT Monitor, Oct 4, 1999

In a new survey of Year 2000 preparedness, 138 of 1,069 insurance companies and HMOs, or 13 percent, have made inadequate progress, according to results released last week by Weiss Ratings Inc., a provider of Y2K ratings on financial institutions. Of those, 91, or nine percent, were assigned a Y2K grade of "Below Average," while 47, or four percent, were rated "Low."

On the other end of the spectrum, 213 companies, or 20 percent, reported data Weiss interpreted as an indication of "High" progress in their Y2K preparations. The remaining 718, representing 67 percent of respondents, indicated a level of progress that Weiss deemed "Average" based on guidelines set by the National Association of Insurance Commissioners (NAIC).

"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. 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," says Martin Weiss, chairman of Weiss Ratings. "Given that the NAIC's standards are looser than those being applied to the banking industry, it's worrisome to see this many insurers still behind schedule."

The survey, mailed on June 30 to 5,654 insurance companies and HMOs, asked 14 questions about each company's timeline for completing various milestones in the Y2K remediation and testing process. Companies receiving a "Low" Y2K progress rating include: Provident Mutual Life Insurance Co. (Penn.); American Family Mutual Insurance Co. (Wis.); Anthem Insurance Companies (Ind.). Companies receiving a "High" Y2K grade include: Nationwide Life Insurance Co. (Ohio); Massachusetts Mutual Life Insurance Co. (Mass.); Pacific Life Insurance Co. (Calif.).

"I'm disappointed in the insurance regulators for their failure to create clear guidelines outlining their expectations for insurance companies' Year 2000 preparations," says Weiss. "It's hard enough as is for consumers and investors to get their hands on a company's expected completion dates. This 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."

If analyzed by the same Y2K guidelines as banks, Weiss forecasts that six times as many insurers would receive a "Low" Y2K grade. Weiss advises consumers and analysts to judge the Y2K ratings in the context of a company's overall financial strength. An insurer with abundant capital resources is better equipped to remedy its Y2K problems today and cope with any consequences after the year 2000. In contrast, an insurer with apparent deficiencies in both its Y2K progress and its financial stability may be at serious risk.