Sunday, 30 April 2006 10:00

Insuring perpetuation of insurer interest

Written by Dick Strom

In Government Goes After Kentucky Mines For Fines - a National Public Radio (NPR) story on the recent rash of U.S. mining accidents, cave-ins, and deaths, Wes Addington of the Appalachian Citizen's Law Center was quoted as saying, "Part of the problem is that many of the higher-ups in the Federal Mine Safety and Health Administration (MSHA) come from the coal industry, and they fully expect to go back to the coal industry." 

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The implication is obvious: When an official with a vested interest in the industry in which he serves is placed for a time in a position where he can heavily influence the management end of that industry, fully expecting to return again to a high position in that industry, he is more than likely going to feather his own nest while in that position of authority.

The fallout from this "revolving door policy" in the mining industry is similar to that which faces consumers and collision repairers when insurance commissioners (ICs) are appointed or elected into that powerful position from the pool of insurer personnel, and fully expect to return to an insurance position of note when they complete their term as IC. The rights and safety of consumers to be made whole again is not likely to be the main concern when commissioners who come from within the insurance industry regulate the only existing office of protection for consumers - from insurer interests.

In his column, The Story Of Insurance Regulation: Regulation Of, By And For The Insurance Companies, former Penn-sylvania Insurance Commissioner Herb Denenberg wrote, "Don't think the insurance commissioner regulates the insurance industry. It's the other way around. The typical insurance commissioner over the years has been somewhere between a lapdog and puppet of the industry. That means consumers often pay too much for insurance, get the wrong kind of protection, don't get their claims paid properly, and are otherwise ripped off by an industry that pretty much operates without the restraints that a commissioner is supposed to apply."

Pennsylvania is one state in which the IC is appointed by the governor and, generally speaking, governor-appointed ICs are chosen from the insurance industry. Whether there is any more accountability in states where the IC voted into position by the general public comes from the insurance industry, remains questionable.

Denenberg advances his point, that politicians and the insurance industry claim there is no need for further oversight of the office of IC, while these see to it "…that the insurance commissioner is appointed with their approval, and is little more than their errand boy. The commissioner supplies the appearance of consumer protection, but pretty much delivers insurance industry protection."

Though those who study insurance regulation have for years viewed this as an obvious conflict of interest, and though Congressional hearings and endless studies have probed the problem, still, nothing has been done to resolve it.

Revolving door policy

Denenberg continues, in part, "Money dictates policy. Campaign contributions gain access and input into the decision making process and also legislative and executive outcomes. The consumer is left out in the cold… The ruling philosophy is less regulation, less government interference, and more getting government off the back of business. Translated, that means the insurance industry (and other industries) do pretty much what they want to do."

And what insurers want to do is to promote what is commonly referred to as a revolving door policy for insurance personnel - that door being the revolving door to an insurance commissioner's office. In this scenario, the commissioner enters the office of IC, having worked within the insurance industry. After his tenure as IC is expired, in which he typically has made better contacts within the insurance industry and polished his resume, he negotiates a top job again within the insurance industry, resigns or is voted out as IC, and is reemployed within the same insurance industry he temporarily left.

The insurance industry will then do its best to have his vacated position filled by another from within insurer ranks. Unfortunately for consumers, that's the way it too often works. According to Denenberg, "A revolving door system (in the office of commissioner of insurance) is a built-in conflict of interest: a built-in bias against protecting policyholders, and a built-in regulatory abuse."

Promises of revolving door insurer re- employment assure that crucial regulatory decisions made by commissioners are made with insurer interests in mind. It's not hard to see from the above scenario that one of the last things on the typical insurance commissioner's mind is protecting the policyholder and public. The first thing on his mind is protecting his past and future benefactors - the insurance industry in general, and his past and future employers in particular.

In exiting his post as IC through the revolving door, the commissioner returning to the insurance industry might, while still serving as IC, first seek guidance from the state ethics commission, which might rule along the lines that he is free, while still holding the position of commissioner, to discuss positions in the private sector so long as he excuses himself from decisions on matters related to any organization with which he might interview for a post- commissioner job in the insurance industry.

The conflict of interest here is that even if the IC excuses himself from matters related to his future employers, those questions will most likely then be resolved by his key deputies, which most likely were appointed by the commissioner himself, and, understandably, may not be comfortable ruling against their present employer (though varying from state to state, it isn't uncommon for exiting ICs to recommend one of their deputies for possible appointment as the successor commissioner).

This assures that deputies to the IC would most likely not want to rock the commissioner's boat. And, since it is not improbable that a deputy knows how his commissioner thinks on any given matter, the deputy will likely follow the lead of the commissioner and yield to his will.


Consumer protections are thin

The regulatory firewall that would guarantee impartiality in IC decisions is thin to nonexistent since it is next to impossible to wall off issues that affect one company from the vast number of other matters the commissioner constantly resolves. An IC from the insurance industry would essentially have to exclude himself from his job of protecting the insured public, if he was genuinely conscientious in excusing himself from all issues that might be construed as a conflict of interest.

If an outgoing commissioner is negotiating with a number of different companies, the multiplied conflicts of interests would affect almost every regulatory decision he might make. Especially when insurance commissioners are chosen from the insurance industry, virtually every decision they make has "conflict of interest" written all over it. As Denenberg concludes, "…the (insurance) industry and its trade press see revolving-door, pro-industry regulation as just part of the system, and without any real problems from their point of view.

Unfortunately, there are serious problems from the public's point of view. But the beginning of wisdom is recognizing reality - that the deck is stacked against the consumer, and abuses are inevitable because no one is policing the insurance industry. It's a game with no rules and no referee, and that's why the public continues to lose in what is usually a blowout."

Cooling off period

While insurers may be quick to pooh- pooh the idea that a revolving door policy involving states' office of insurance commissioner is a conflict of interest, it is of such concern in some states that the policy is forbidden, or at least tempered with a so-called "cooling off" period.

In an article, Senator Pushes Bill To Limit Insurance Czar's Job Hunting, published in the Baltimore Business Journal, Maryland State Senator George Della, alarmed by the potential for conflict of interest issues, introduced a bill that would prohibit former ICs in the state from returning to work in the insurance industry for one year after leaving that post. Alfred W. Redmer Jr., who has worked in the insurance industry since his early twenties, recently vacated the post of IC of Maryland to become CEO of Coventry Health Care of Delaware, which also sells health insurance in Maryland. Since then he has led Coventry's push to increase its share, especially among small companies, of the health insurance market in Maryland.

Senator Della contends "You shouldn't be seeking employment with the industry that you regulate, whether it be the insurance commissioner or some other industry: Regulators are supposed to be looking out for the public, not for themselves." But Redmer counters that "Della's bill, if successful, would lead to the selection of regulators with little knowledge of the insurance industry. The only option you would have would be to appoint political hacks with no background or experience in the subject matter that they are regulating."

Though the National Association of Insurance Commissioners (NAIC) claims it doesn't keep statistics on which states restrict future employment of state insurance officials, the Director of Insurance for the Consumer Federation of America, J. Robert Hunter, a former state and federal insurance official, said, "…such restrictions make sense. You want to believe that your regulator is protecting you. That's the job of the regulator, not lining his or her pockets with future employment opportunities."

Since Redmer's exit as Maryland's IC, that state's governor recently named R. Steven Orr, formerly an executive with Universal Underwriters Group, owned by Zurich Financial Services, Inc. as Maryland's new commissioner of insurance. The article concludes, "Lawmakers in Maryland are subject to a "revolving door" restriction that prohibits them from becoming lobbyists for one legislative session after they leave the General Assembly. Still, several prominent former lawmakers are among the top lobbyists in the state. (But) State employees in Maryland are not subject to such restrictions."

Who can consumers rely on?

In another consumer-interest article, Denenberg wrote, "Even the Wall Street Journal, despite its pro-business bias commented on that revolving door (from the insurance industry, to insurance commissioner, and back to the insurance industry afterwards), noted in the same article which admitted kid-glove treatment for insurers, 'Nine of the past 11 National Association of Insurance Commissioner presidents took insurance industry jobs after they left the association.'

"The NAIC is not only an organization of commissioners, but it also has important regulatory responsibilities. So it is not comforting to consumers to know that the top people at the NAIC are usually involved in the old 'revolving door' of regulation. You can't rely on the insurance commissioner to protect the public. That's certainly true in Pennsylvania now, and is also true in most other states.

So can you rely on the legislature? One way to answer that question is to look at the (legislators who make up) the insurance committee in the Pennsylvania Senate and House. One member owns a title insurance company. Another is a shareholder of an insurance company. Another legislative leader is a member of a law firm that represents eight insurance companies. Still another member owns an insurance agency. And then look at the contributions of the chairmen of these committees. Both the chairman of the House and Senate Insurance committees received about half their PAC contributions from insurance companies… Somehow, policyholders are going to have to figure out a way to protect themselves."

To date, no one has come up with a formula for accomplishing that since the insurance industry has its tentacles into everything, leaving states, with little or no federal regulation, burdened with oversight of this $3.5 trillion in assets monopoly of inconceivable proportions.

As Federal Marshal Sam Gerard (Tommy Lee Jones) in the flick, The Fugitive, exclaimed after discovering the wealth and potential for corruption of the drug industry he was beginning to suspect (which wealth was infinitesimal in relation to that of the insurance industry), "That company's a monster!" And so, in the opinion of many, is the insurance industry!

Dick Strom, Modern Collision Rebuild, 9270 Miller Road, NE, Bainbridge Island, Washington 98110; (206) 842-3621; e-mail: moderncol@qwest.net.