State Takes Aim at Unlicensed, Shady Insurers

State regulators say that new anti-fraud weapons will help them stop shady insurers from fleecing consumers with worthless health, auto and commercial policies.

The California Office of Administrative Law this week approved state Department of Insurance regulations requiring audited financial statements from all carriers that are unlicensed in California but wish to sell insurance here. Such companies must have at least $15 million in capital and surplus, plus at least $5.4 million in U.S.-based assets.

“With these tough new guidelines . . . we will be able to examine the reputation and financial security of each and every company that wants to do business in this state and reject those that don’t meet our standards,” Insurance Commissioner John Garamendi said in a statement Friday.

Previous regulations didn’t specifically require U.S.-based assets; moreover, insurers did not have to provide financial reports until the Department of Insurance demanded them. Often, regulators weren’t aware a company was even doing business in California until consumer complaints started piling up. By then, the damage might already have been done.

Even with the new rules, regulators will have trouble suppressing fraud. Determined crooks have successfully used legal tactics to thwart efforts to shut them down.

About 500 insurers do business in California without a state license, a Department of Insurance spokeswoman said. These include such giants as Lloyd’s of London, which offers specialized coverage that is unavailable from licensed carriers.

But some unlicensed insurers are too financially weak to meet their obligations when a heavy flow of claims arrives. Others, often registered in the Caribbean or other offshore locales, are set up deliberately as criminal enterprises and shun state licensing in order to dodge regulatory oversight.

Unlicensed insurers do not belong to the California Insurance Guarantee Fund, so when they fail or run out on claims, there is no protection for policyholders.

The Department of Insurance says that one company--Apex Placement Insurance Co. of the Turks and Caicos islands--is believed, along with affiliates, to have defrauded Californians of up to $100 million before regulators seized it in 1991.

Under the new regulations, financial statements must be filed immediately for new insurers coming into the state; for those operating here before the regulations took effect on Wednesday, there is a 180-day grace period.