As predicted the debate on needed changes to the insurance regulatory model is now officially raging. On one side is our State Insurance Regulators crying foul on Federal oversight of insurers while on the other are those that point out the obvious: The old way of doing things just won’t do any longer. I’ll note the same group that is now pretending to look out for us consumers is also the ones with a revolving door problem. As a group and with little exception state insurance commissioners like our own Mike Chaney here in Mississippi are paper tigers who pretty much do just what the insurance industry tells them or they’ll leave.
Would the hodgepodge of state regulations have prevented subprime disaster? No, but it also didn’t prevent AIG from imploding either. Jim Connolly at the National Underwriter has the story of secrecy, which is generally how our state insurance regulators prefer to conduct their business. Putting this group of fossils out of business will be a good impact of the AIG disaster IMHO:
State insurance regulators have voted to keep confidential insurers’ pending applications for new products prior to their approval.
The action at a meeting of the National Association of Insurance Commissioners applies to product filings that are pending approval with the Interstate Insurance Product Regulation Commission.
Prior to the vote insurers warned that amending the current public access policy would make them less likely to use the commission. But a leading consumer advocate called that argument “a sham.” The Compact Commission is currently trying to increase the number of product filings so the commission will become profitable and self-sustaining.
To date, 117 product filings have been approved in an average of 25 states with an average turnaround of 31 days, according to Frances Arricale, the commission’s executive director.
Company after company—including Aegon, Genworth Financial, John Hancock, Mass Mutual, New York Life, Prudential and UNUM—said they would be wary of using a system that would reveal new, innovative products to competitors. These companies said that they have either used the commission to file products or planned to use it in the near future or when more standards are developed.
However, these companies “need to protect intellectual property,” according to Michael Lovendusky, representing the American Council of Life Insurers, Washington. Mr. Lovendusky was joined by Randi Reichel, representing America’s Health Insurance Plans, Washington, in opposition to the amendment.
Birny Birnbaum, a consumer representative who receives NAIC funding to attend its sessions, cited the current financial crisis with American International Group, New York, and Wall Street in general, as a reason for greater transparency.
“The meltdown was due in a large part to the need for greater transparency and greater accountability,” he said. Mr. Birnbaum said he was joined by the Center for Insurance Research and the Consumer Federation of America.
Mr. Birnbaum told commissioners that insurers are in effect saying that if state regulators do not do what they want, they will stay away from the commission and “state regulators will look inept to Congress.”
But he continued, “Where will this stop?” Will insurers threaten to not use the commission if there is another rule that they don’t like that is put into effect?” he asked.
“Some of these people are using the AIG crisis to say that there should be federal oversight. Why would you count on the words these folks say when at the same time they are doing their best to undermine state based regulation?”
The NAIC has criticized the ACLI and the American Insurance Association, Washington, for releasing statements saying that the AIG crisis demonstrates the need for a federal regulatory presence.
Mr. Birnbaum noted that in many states, product filings become public when they are filed.
A recent IIPRC survey taken between July 16 and Sept. 2 found that 44 percent of respondents had access to pending filings and that 68 percent of states surveyed had access to disapproved filings and 59 percent to withdrawn filings which include access to accompanying correspondence and other records.
He also cited comments from North Carolina Insurance Commissioner Jim Long that the commission affords trade secret protections to companies when needed.
And, Mr. Birnbaum said, in states that do make product filings public, companies’ filings are open to everyone, including competitors, and it has not made a major difference in the market.
The relationship between the industry and the state regulators definitely needs reform. Chaney didn’t create the cozy relationship, he inherited it – and the fallout.
Nonetheless, he’s stuck with the job of defending the market survey and the relationship between MDI and State Farm. It will be difficult to determine how much of what happened following Katrina was case of you scratch my back and I’ll scratch yours or you cover my a$$ and I’ll cover yours. But all you have to do is read the Harrell deposition to know the level of involvement was not as distance as one would expect of regulatory agency.
Nowdy he stuck himself with the job of defending the market conduct survey, espcially when Harrell tried earlier this year to settle his personal score with Dickie Scruggs in it.
Nobody down here is expecting anything except a complete whitewash. To this point Mr Chaney has not demonstrated to me he is his own man rather than a regulatory lapdog for a future employer. On this one I wish I am wrong I really do.
The sooner we are rid of these paper tigers the better.
sop