Briefing: Texas Commissioner's Bid For NAIC Presidency Fails

• Dennis Kelly
• January 2001
• 

Texas Commissioner's Bid For NAIC Presidency Fails

Texas Insurance Commissioner Jose Montemayor mounted a highly unusual, impromptu bid to win the 2001 presidency of the National Association of Insurance Commissioners, but fell short in a vote by the Executive Committee.

Kathleen Sebelius, the commissioner in Kansas and NAIC vice president in 2000, prevailed in the election.

The committee met behind closed doors for more than two hours as hundreds of people waited in the long hallway outside. By that time, most knew that Montemayor had mounted a serious challenge, rare in the history of NAIC presidential elections.

Also elected were Terri Vaughan, the Iowa commissioner, as vice president; and Michael Pickens, the Arkansas commissioner, as secretary/treasurer. Vaughan, who served as secretary/treasurer this year, was unchallenged. Pennsylvania's Diane Koken vied unsuccessfully for secretary/treasurer.

The NAIC did not release the vote count, but Montemayor said in a private interview that it probably had been close. He confirmed rumors that he had 27 votes going into the meeting, more than a majority, and "seven maybes." Commissioners voted by secret ballot.

The debate in executive session was civil and courteous throughout, according to both sides.

Normally, the NAIC sticks to a system in which its officers move up the chain of command from secretary/treasurer to vice president to president. But Montemayor pointed out the organization's laws do not require adherence to that system, that the officers must stand for election, and that he wanted to break the "Kiwanis Club mode" that the system represents.

"The problem is that the system passes up an enormous pool of talent that can't go through a four-year process," he said. "I have a two-year shelf life in Texas, and I don't know if I'm going to be commissioner there in four years." Texas commissioners receive two-year appointments by the governor.

Panel Adopts Report on Life Settlements

The Life Insurance and Annuities Committee of the National Association of Insurance Commissioners unanimously adopted a report that would outline state regulation of life settlements, the practice of healthy insureds selling their life insurance policies to investors for cash.

The committee's action means the updated model act contained in the report is likely to be approved by the full NAIC in March, Massachusetts Commissioner Linda Ruthardt said. It would then be up to individual states to adopt the model as law.

The report proposes an addition to the Viatical Settlements Model Act, which was adopted in 1993 and extensively amended in 1998. Under the proposal, life settlements would be added to the definition of viatical settlements, so the model would cover any sale of a life insurance policy for less than its face amount. The viatical business sprouted when parties began buying the policies of the terminally ill at a discount to face value. Since then, the terminally ill business has fallen, but the life settlement business has exploded.

The Viatical Settlements Working Group, which drew up the proposal, also included sections on fraud prevention and control and on criminal and civil remedies.

Speed-to-Market Initiative Ready for Limited Rollout

The National Association of Insurance Commissioners approved the framework for one of its major projects of the year: how to move insurance products more quickly to market.

The Speed-to-Market Working Group adopted its final report, which then was ratified by the full NAIC membership. The actions authorized a limited launch on April 1 of a new regulatory organization, the Coordinated Advertising, Rate and Form Review Authority, to receive and act on insurers' filings of new products and rates to be used in more than one state. CARFRA will allow insurers to file at one location on the Internet. The report also authorizes improvements to state-based systems in the form of operational and regulatory-framework efficiencies.

The CARFRA filings will be evaluated by review panels composed of experienced employees from the member states participating in the limited launch. States could either accept those recommendations and use market-conduct examinations for verification, or they could do an upfront review within 45 days of the filing.

Maine, Michigan, New York, Oregon, Pennsylvania and Texas will participate in the limited launch, along with four states to be named by April 1.

CARFRA's limited launch will be available only to life and health insurers. Property/casualty insurers asked to not be included in the program, since many of their products must meet more extensive state-by-state requirements.

The state-based reforms are intended to improve the timeliness, quality and consistency of filing reviews in each state.

The reforms ask that each state develop a checklist of standards used to review a filing. Ohio Commissioner Lee Covington, who headed the Improvements to State-Based Systems Subgroup, said about 90% to 95% of commercial products are expected to qualify for informational filing, which means insurers can take products and rates to market without prior approval.

Insurers Urged to Reinvest in Community

Insurers are not covered by the federal Community Reinvestment Act, but consumer advocates gave a presentation on a similar, but voluntary, program in Massachusetts in which 25 insurers participate.

Backers of the program want state regulators to consider attaching investment requirements to their initiatives aimed at streamlining regulation.

"We're on the verge of proving to the insurance industry that community reinvestment is good for communities and for the industry," said Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance, a 15-year-old coalition that works to increase public and private investment in affordable housing.

Callahan said the life industry participated 30 years ago in an urban program that was an "unmitigated disaster." Many insurers lost money when loans were not repaid. But since passage of a state law in 1998, insurers have committed more than $66 million to community development in exchange for a permanent tax credit.

Another plus for insurers is that they don't face much paperwork or regulatory scrutiny, said Linda Ruthardt, Massachusetts commissioner. The insurance department urged that insurers be given full latitude to act. "If problems develop in the future, that's when we'll step in and regulate," she said.

Forecasters Split on Activity Of 2001 Hurricane Season

The dean of long-range hurricane forecasters is predicting a slightly below-average season in the Atlantic and Caribbean in 2001, but an insurer-sponsored group of meteorologists has produced a more ominous outlook for the year ahead.

William Gray, a professor of atmospheric science at Colorado State University, is predicting nine named storms and five hurricanes--two of them intense--for the hurricane season that runs from June 1 to Nov. 30. The average from 1950 to 1990 was 9.3 named storms, 5.8 hurricanes and 2.2 intense hurricanes--those that are Category 3 or higher, with sustained winds of at least 111 mph. The 2001 forecast puts overall tropical cyclone activity at 90% of average.

Gray's forecast is based primarily on the expected influence of El Niqo, a cyclical warming of South Pacific Ocean waters off the coast of South America. This has been shown to inhibit formation of hurricanes in the past. Also cited in his forecast are high-altitude wind patterns near the equator, rainfall in West Africa and atmospheric pressure over the Azores Islands in October and November.

But a separate forecast from the Benfield Greig Hazard Research Centre at University College London is predicting a much more active season. The forecast calls for 10.6 named storms and 6.9 hurricanes, 3.4 of them intense. The London researchers use a model that looks at tropical Atlantic and Pacific sea-surface temperatures and Caribbean trade winds. The tropical North Atlantic is expected to be warmer than normal, while the trade winds will be weaker than normal. Both are factors that aid hurricanes, the group said.

Gray also has forecast landfall probabilities for segments of the U.S. coastline and the Caribbean. For the East and Gulf coasts as a whole, the probability of a Category 3 or higher storm making landfall is 63%, compared with an average for the past century of 52%, Gray said. The probability for the East Coast and the Florida peninsula is 43%, compared with an average of 31%, and the chances for the Gulf Coast are 36%, slightly above the average of 30%. The risk is about average in the Caribbean, Gray said.

The London group's U.S. landfall forecast calls for 3.3 tropical cyclones to reach the coast, including 1.8 hurricanes, 0.8 of them intense.

Holocaust Commission Finds More Policies

The International Commission on Holocaust-Era Insurance Claims said it's found 20,000 World War II-era policies in German archives.

The commission will publish the names of the policyholders on its Web site, www.icheic.org. The Web site already lists 19,000 policies that researchers found in Austrian archives.

Lawrence S. Eagleburger, chairman of the commission, said publicizing the names of policyholders is vital, because Holocaust victims and their heirs may not even realize they have a potential claim.

Searching for such policies is well worth the effort, Eagleburger said in a statement. "It demonstrates the value of aggressively pursuing the research necessary to uncover the documents, records and testimonies necessary to identify potential claimants and ultimately achieve justice," he said.

The commission seeks payment of unpaid Holocaust-era policies to victims and heirs who were denied payment after World War II.

Kentucky's Commissioner Quits, Considers Private-Sector Offers

Kentucky Insurance Commissioner George Nichols III said "the timing seemed right" to announce his resignation as his term as president of the National Association of Insurance Commissioners came to an end.

Nichols, the first African-American to serve as president of the NAIC, is succeeded by Kathleen Sebelius, Kansas commissioner and vice president of the NAIC in 2000.

Nichols said he's proud that he conquered the major hurdle of reforming the health insurance market in Kentucky and bringing companies back to the state following the passage of a bill creating a high-risk pool.

The fact that the oldest of his three children is preparing to enter high school next year made the time right to relocate to another state, he said, noting that he is in the process of evaluating offers from several international insurance companies "that are involved in more than just insurance."

During his four-plus years as commissioner, Nichols said he enjoyed the strong support of Kentucky Gov. Paul Patton, as well as bipartisan support in the Legislature. This was capped by the department helping to pass 18 bills in 1998 and another 16 bills in 2000.

Other accomplishments under Nichols' reign included the creation of a consumer protection and education division, which now handles about 2,000 calls and complaints a month. "That has been responsible for getting millions of dollars back on behalf of consumers," Nichols added. A fraud division also has done a number of high-profile cases in Kentucky, and the department was able to abolish the annuities tax and lower the premium tax for life insurance companies.

The administration also successfully managed liquidations in a market that he calls a "bear." In the past 18 months, the department has probably collected more than $100 million, Nichols said. "That's pretty exciting that we have been able to make that kind of progress."

Comparatively, the national landscape has not been as easy a road for Nichols during his tenure as NAIC president. He continually fought for the creation of a national system of insurance regulation, citing the need for it before it becomes too difficult to stop the implementation of a federal system. "We've talked for 128 years that we need to have uniformity. Well, I think the time has come; we can't talk anymore," he said.

The industry remains divided over regulation, saying it wants more regulatory freedom and more deregulation to allow insurers to do things that banks do, Nichols said.

"Unfortunately, in the legislative process, we sometimes have legislated based on the few vs. the many," he said. For example, problems have arisen around race-based premiums and independent-review organizations, he said.

Nichols struck down any notion that lack of unity led to his resignation, saying that his job is to focus on regulation, and the industry's job is to focus on their own companies.

"We may have philosophical differences about how we do certain things, but I felt like they were very supportive of the overall agenda and worked very hard to assist the NAIC in trying to come up with solutions," he said.

For the industry to continue in a positive direction, insurers need to focus on making market conduct an accredited program examination, Nichols said, calling it "the next leg of insurance regulation."

Task Force Assigned to Lead National Licensing Program

The full membership of the National Association of Insurance Commissioners has authorized the creation of a task force to execute a limited launch of a national treatment program for licensing insurers. It will use the existing national treatment proposal as a starting point.

The limited launch will be conducted from June 2001 to November 2002. The new task force would then make recommendations to the working group for expanding the program to all states and other insurance jurisdictions.

Initial members of the task force will come from California, Illinois, Maine, Nebraska, North Carolina, Pennsylvania, Texas, Virginia and Wisconsin. Those states are within all four NAIC-designated zones of the United States.

The program will make use of the NAIC's ALERT (Accelerated Licensure Evaluation and Review Techniques) Project, to which 46 states and the District of Columbia are currently committed, said Betsy Costle, co-chair of the working group and commissioner of Vermont. The working group wants to achieve active participation in the ALERT project by all NAIC members by June, she said.

The working group also is developing state legislation to provide insurance regulators and the NAIC the necessary legal authority to enact a national treatment system by June 2003.

The Alliance of American Insurers, Downers Grove, Ill., has opposed the national treatment initiative because it would represent erosion of state regulation.

The Alliance maintains that all licensing problems can be fixed within the current state system.

Consumer Advocates Claim Their Ideas Get Short Shrift

Consumer advocates complained that the National Association of Insurance Commissioners' working groups had not given enough timely consideration to their proposals.

"Your Gramm-Leach-Bliley working groups have rejected our principles without discussion," said J. Robert Hunter, insurance director at the Consumer Federation of America, at a meeting of the NAIC Funded Consumer Representatives. Hunter was particularly critical of the Speed-to-Market Working Group, which has worked furiously since the NAIC's fall meeting in September.

Hunter alleged that the working group had rushed its process and "ignored all consumer considerations." He also said that the subgroup agreed to industry requests not to make certain data available to the public. Consumer advocates say the data would help them to detect redlining.

Hunter said the consumer advocates, which are funded by the NAIC to participate, spent hundreds of hours on proposals "that went into a black hole." He also complained that the Speed-to-Market Working Group met excessively in executive sessions and called for an end to the practice.

Diane Koken, Pennsylvania's insurance commissioner and chair of the CARFRA subgroup, said its members believe consumers benefit when products go to market more quickly. "We'll welcome participation by consumer groups, but in the actual application of standards, there will be no input from the industry or consumers," she said.

Ohio Commissioner Lee Covington, speaking on the issue of executive sessions, pointed out that Hunter and Birney Birnbaum, who heads the Houston-based Center for Economic Justice, represented consumers and Sonya Larkin-Thorne of the American Insurance Association and Lenore Marema of the Alliance of American Insurers represented the industry in the subgroup sessions.

Mass. Attorney General Seeks Lower Auto Insurance Rates

The Massachusetts attorney general's office confirmed that it was seeking a 10% cut in the state's automobile insurance rates.

Massachusetts Attorney General Thomas Reilly's office filed its request for the rate decrease after previously announcing its intentions at a series of hearings on setting rates for 2001.

In August, Assistant Attorney General Peter Leight spoke on Reilly's behalf at the hearing and said declining accident claims and a strong economy suggested that insurers didn't need to institute rate increases or even keep rates at their current levels. Leight testified that Massachusetts consumers had enjoyed four years of declining auto rates, followed by "very moderate increases, less than 1% a year" in 1998 and 1999.

The proposed rate decrease comes at a time when industry losses are flat or decreasing--a trend taking place not only in the state but on a national scale, said Joanna Connolly, assistant attorney general for Massachusetts.

With average premiums of $890, the rate decrease being sought would average out to savings of $90 a car, Connolly said.

Connolly said the initial plan was to ask for about a 12% decrease in rates, but the proposal was trimmed by 2% when the adjustment for the safe driver insurance plan was reported, as well as the estimated funds needed to cover losses from Trust Insurance Co.--one of two failed auto insurers in the state placed in receivership this year. The other was New England Fidelity Insurance Co.

Any speculation that these two failed auto insurers indicate an overall weakening of the industry carries no merit, Connolly said. "The industry is very profitable and quite healthy," she said.

Calif. State Bar Exonerates Quackenbush Whistleblower

The California Insurance Department attorney who leaked reports detailing former Insurance Commissioner Chuck Quackenbush's alleged wrongdoing didn't violate any ethical rules, the state bar association has ruled.

Last year, the state Legislature launched an investigation into Quackenbush's dealings with insurance companies based on information provided by Cindy Ossias, who was an attorney in the department.

Ossias gave state legislators information on Quackenbush's then-confidential settlements with insurers over how they handled claims from the 1994 Northridge earthquake. While Quackenbush could have fined the companies up to $3 billion, he instead ordered them to donate $12 million to a foundation he controlled.

Quackenbush resigned before he was called to testify on the matter. Before he left, he put Ossias on administrative leave. Quackenbush's temporary successor, Clark Kelso, reinstated Ossias, saying her actions were protected by the Whistleblower Act, which allows state governmental employees to "report waste, fraud, abuse of authority, violation of law...without fear or retribution."

The California Bar Association was asked to review whether Ossias had violated client-attorney privilege.

S.C. Licenses First 2 Captives

FT Reinsurance Co. and Carnegie Insurance Corp. have become the first captives licensed in South Carolina.

Both companies are single-parent captives. FT Reinsurance is a wholly owned subsidiary of First Tennessee Bank/First Horizon Holding Co., and is redomesticating from Vermont. Carnegie is owned by Ohio College of Podiatry and managed by Vermont Insurance Management/USA Risk Group.

South Carolina became a captive domicile in June following Gov. Jim Hodges' signing enabling legislation.