Y2K - A Regulatory Response

Data Quality (narrow topic or advanced); Everyone has heard or read about the Year 2000 (Y2K) problem that refers to the potential for date-reliant electronic systems to fail because they were not designed to read four digits. In the insurance industry, the importance is particularly acute because the contracted product is delivered in the future, crossing date lines. Regulators across the country and throughout the world are confronted with monitoring the level of preparedness of their constituency for the Y2K. Like insurance companies, insurance regulators have a more difficult task because of the complexities and forms of insurance and reinsurance, as well as the industry's heavy reliance on business partners and vendors. Insurance companies must have planned adequately and provided for their internal systems, such as claims processing and accounting, to be Y2K compliant. They also must have checked their external vendors, service providers and other business partners to be sure that those companies will be ready. For the property and casualty segment of the industry, regulators must ensure that insurers have assessed their potential liability for exposure under policies issued and addressed liquidity issues if their investment markets are temporarily halted. Because there is no precedence, little reliable data is available on the cost of correcting the Y2K problem or the potential impact on the solvency of individual insurance companies or of the industry. This paper will discuss the efforts by the Texas Department of Insurance (TDI) to assess the Y2K problem and to provide an appropriate regulatory response. The paper also reviews the material factors that bear on the Y2K issue and concludes with recommendations to the industry, as well as provide insights into the future direction of the response to the Y2K challenge.