Insurance Department

Liquidation Bureau

When an insurance company incorporated in New York State is determined to be insolvent, the State Insurance Department's Liquidation Bureau is responsible for taking possession of the company, paying the company's outstanding insurance claims, and settling the rest of the company's affairs. We tried to evaluate the Bureau's effectiveness in performing these duties, but our access to Bureau records and personnel was inappropriately restricted by Bureau officials and, as a result, we were unable to fulfill our audit objectives. We were able to perform enough work, however, to conclude that the insurance company assets controlled by the Bureau are not adequately safeguarded and Bureau operations in general are not subject to sufficient controls. For example, in an action we believe was beyond the scope of the Bureau's authority, nearly $500,000 in funds from eight insolvent insurers was used to pay for legal services on behalf of a solvent insurer. We also found that a competitive process is not used to select the Bureau's many consultants, and a relatively small number of firms receive a majority of the consultant fees paid by the Bureau. Moreover, in many cases, the services provided by the consultants are not specified by written agreements and the services themselves are not adequately monitored to ensure that the payments made are commensurate with the services provided. We recommend that Bureau operations be subject to the controls applied to other State agencies, including the pre-audit of expenditures and the approval of contractual agreements.

For a complete copy of Report 96-S-75 click here.