California Commissioner Notes CIGA Review

California Insurance Commissioner Steve Poizner has announced a four-point plan for the California Department of Insurance (CDI) to improve the performance of the California Insurance Guarantee Association (CIGA) by reviewing its management structure and internal controls.

CIGA, an association of insurance companies managed by a board of governors and created by California statute, pays the covered property, casualty and workers' compensation insurance claims of insolvent insurance companies. Its mission is to pay claims on a timely basis and help relieve claimants' financial burdens experienced when insurance companies fail.

CDI has a four-part plan for investigating reports of improper management and internal controls at CIGA and remedying problems:

1. CDI has commenced an examination of CIGA using both CDI examiners and an
outside consultant to evaluate CIGA's corporate governance, internal control and
management structures.

2. CDI will propose changes to CIGA's plan of operation, a statutorily prescribed
document that dictates how CIGA operates.

3. CDI will continue regular market conduct exams to ensure that CIGA's claims
handling practices are proper.

4. CDI will ensure that it is included in CIGA board meetings.

This plan reflects CDI's intention to be more aggressive with its oversight of CIGA in light of recent assertions about management and internal control problems. CDI anticipates completing its review in the next six months, after which specific recommendations will be made. CDI also expects to start and complete a market conduct exam of CIGA shortly.

In the past, CDI directed CIGA to improve its operations when problems were discovered. For example, CDI conducted a market exam of CIGA in 2004, which disclosed that CIGA was not conducting required annual audits of third party administrators. CDI notified CIGA of this problem and directed it to conduct audits, which it has done since that time.