Audit Cites Mismanagement in Insurance Department Unit

In a report that echoes findings last year by another agency, the state auditor this week cited serious management deficiencies within the Insurance Department division that handles the assets of failed insurance companies.

Auditor Kurt R. Sjoberg said the department’s Conservation and Liquidation Division lacked a strategic plan for handling insolvencies as they occurred and thus was slow to identify which firms needed to be liquidated and which were worth rehabilitating.

The result, he said, was needless delay in distributing the companies’ assets to policyholders and, in some cases, overspending on staff.

Deputy Insurance Commissioner Gary Hernandez, who oversees the division, said most of the problems were identified in previous audits by the state Finance Department and have already been corrected or are being addressed.

For example, Insurance Commissioner John Garamendi ousted the division’s top two managers last October, blaming them for making more than $200,000 in unauthorized payments to employees, as well as other mismanagement.

Sjoberg acknowledged that corrective action has been taken, but he said the response was slow.

“Problems within the division were known in the summer of 1991 with sufficient detail that red flags should have been raised,” he said.