Ohio Insurance Department Reaccredited by Regulators

Posted in General | Wednesday, December 13th, 2006 | Trackback

Insureds,      

This press release says an independent review team of the National Association of Insurance Commissioners has reaffirmed that Ohio’s insurance department has “adequate statutory and administrative authority” to do its job.

“To be reaccredited – and with a high score(1) – reaffirms that effective systems are in place at the Ohio Department of Insurance to protect Ohio insurance consumers and to ensure that a healthy and competitive insurance marketplace is maintained,” Ohio Insurance Director Ann Womer Benjamin said.

I offer it to point up the circularity of state-based insurance regulation. The headline says “regulators” reaccredited the department, but in fact the NAIC is a trade group, based in Kansas City, Mo. Its members are the commissioners of the 50 states, D.C.(2) and the U.S. territories.  So, on some level, the commissioners are policing each other.  And while NASDAQ and the Big Board are also self-regulatory organizations, at least they report to a higher authority, the SEC.  But that’s not really the main problem.

Also not necessarily the (main) problem is the absence of ethics rules to slow the revolving door between regulated and regulator. I have cited the 1996 Money Magazine story (by necessity because, until I do it myself, I can’t find anything newer) that found more than 100 former commissioners working in the industry. I’ve noted that Louisiana’s Katrina-era commissioner, Robert Wooley, resigned last February to work for a law and lobbying firm with insurer clients, and that in 2004 then-South Carolina Commissioner and NAIC head Ernest Csiszar resigned both posts to become head of the Property Casualty Insurers Association, a major trade group. The current NAIC president-elect, is Alabama’s commissioner, Walter Bell, who worked for 19 years at MONY Group, now a unit of France’s Axa Group(FC).      

This is not to impugn the integrity of anybody, but just to point out that given this kind of insularity some assumptions seem to have wandered off base.  I have a sneaking suspicion, for instance, that Mississippi and Louisiana’s DOIs are also accredited by the NAIC-sanctioned process, and with all respect to Commissioners Dale and Donelon, I’m not sure even they would say their offices were anywhere near capable of policing insurer market-conduct after Hurricane Katrina.

Commissioner Donelon’s top priority, as Notes! has noted, isn’t making sure Allstate pays, but making sure it stays.  How does that work? 

But even if “availability” weren’t an issue, Commissioners Dale and Donelon will be the first to tell you they aren’t capable — or even allowed, really — to help policyholders with claims. Their post-Katrina role has been essentially that of traffic cop, waving thousands of (the most extremely) unhappy insureds over to court.  What did the courts do to deserve this? And,  really, why are taxpayers funding an insurance-claims-resolution system?

I know both states have set up mediation processes, but, again, even my two commissioner pals will tell you that mediators’ powers are nothing more than hortative, to use a big word that I had to look up. 

What would we think of the FDIC if it said it couldn’t help a bank depositor if a bank unilaterally declined to authorize a withdrawal? If you don’t agree that withdrawals and claims are at all analogous, I would like to hear why.      

Right now, Jefferson, Orleans, St. Tammany and St. Bernard Parish courts, the Eastern District of Louisiana and the Southern District of MIssissippi are swamped.  And, I’m (a bit) sorry to be critical, but don’t ask the commissioners or the NAIC how many Katrina-related lawsuits have been filed against insurers.  The only person who has that is me.(3)

I’ll leave it there and put an Appendix on www.insurancetransparencyproject.com for hardcore ITP readers.

(1) A bit further down it says:  “All scores are confidential.” That’s, I’m sorry, stoopid.

(2) Okay, Cool Texan?

(3) And ITP only has a rough idea. And if you think it was easy for ITP to collect this data, you clearly do not appreciate what ITP had to go through. ITP is a registered trademark(4). Void where prohibited. All claims referred to ITP Mediation Inc.

(4) Not really.
FC=Fairness Corner:  Not all commissioners are insurance industry products.  George Dale of Mississippi isn’t, though he has been commissioner there since the U.S.S. Monitor took on the C.S.S. Merrimack.  Neither is current NAIC president, Alessandro A. Iuppa, of Maine, a former Nevada commissioner and consultant to state insurance departments on financially impaired insurers.
APPENDIX I:

Founded in 1871, the NAIC is made up of the insurance commissioners of the 50 states, the massively important D.C. market and the five U.S. territories. Its purpose is to “provide a forum for the development of uniformity when uniformity is appropriate.” To me, this is an attempt to perpetuate the fiction that somehow insurance is a local business. Nobody believes that.

The NAIC (very kindly) allowed me to attend its fall conference in D.C. as a registered press person. The NAIC is made up of nice people and its press operation led by Scott Holeman is first-rate. I will say, to tease my hosts a bit, the NAIC general conclave resembled a cross between a UNESCO conference and opening ceremonies of the Olympics – the flags, the massive U-shaped table, the blue bunting, the pitchers of water, the hundreds and hundreds of attendees. Having covered Providence City Hall, I suspect there are a few jobs at stake here.
Not surprisingly, NAIC is a vigorous proponent of state-based regulation and vigorous opponent of the National Insurance Act of 2006, proposed by Sens. John Sununu, R-N.H., and Tim Johnson, D-S.D., which would create a federal insurance regulator and allow insurers to pick. But that doesn’t make NIA good.
Regulation aside, the advantages* (see below) of state-based markets seem weak, to say the least, particularly when balanced against the massive inefficiencies created by 50 artificially small insurance pools compared to a big rich national market.
*Here’s a short version of the NAIC’s rationale for state regulation. “Unlike banking and securities products, which are about access to credit and risk taking, insurance is a legal promise—a guarantee—to pay benefits if and when a certain event occurs. Insurance products are rooted in the separate contract, tort, and social policy laws of each state where they are sold and require a more accountable, accessible type of protection that states can best provide. Congress endorsed state oversight of insurance in 1945 with the McCarran-Ferguson Act and specifically recognized and reaffirmed the benefits of the state system in 1999 when it modernized federal financial supervision laws in the Gramm-Leach-Bliley Act (GLBA). Since then, however, insurance industry Washington lobbyists have pushed for a federal insurance charter and a new regulatory regime in Washington that would diminish or supplant successful and effective state-based consumer protections.”   

 

 

 

 

3 Responses to “Ohio Insurance Department Reaccredited by Regulators”

  1. Dean Says:
    December 13th, 2006 at 1:01 pm

    From someone who gets the ITP groove:

    “A comment: I don’t know about other states, but here in Mississippi the ins. commissioner’s office cannot help you with unethical agents (a/k/a downright thieves). In fact, to quote our deputy director, “We aren’t the Better Business Bureau.” I’ve reported three agents in the last decade. The first time because I thought it would stop the thief, the next two just so I could say I tried. All three agents ‘voluntarily surrendered’ their licenses within six months of my reporting them, by the way.”

  2. Bill Says:
    December 15th, 2006 at 9:42 am

    Having been in insurance regulation for most of my adult life, I am aways courious that more is not made of the NAIC and state regulators attempts to maintain state regulation of insurance. If you simply review the NAIC initiatives over the last 5-8 years, its clear the motive is to give the appearance that state regulation is effective. Accrediation and uniformity are excellent examples. Neither effort can or will be effective because neither program was implemented to improve policyholder protections or to improve other areas of regulatory effectiveness. The simple fact is, most insurance commissioners and the NAIC are interested in the appearance of regulation and not real effective regulation.

    Everybody knows - there is no justification for state based insurance regulation!

  3. Insurance Transparency Project » Blog Archive » SEC Begins Probe Into UnitedHealth Group Says:
    December 27th, 2006 at 6:13 am

    […] Now, contrast that with data about insurer performance. True, you can go to the site of the National Association of Insurance Commissioners, the regulators’ trade group (Huh?! What’s that mean?! See http:insurancetransparencyproject.com at this link.) Records there are a mere $10 — PER PAGE. Holy uncovered perils! Wow! […]

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