With the jawbone of an ass, heaps upon heaps, with the jaw of an ass have I slain a thousand men.
Let’s set this up with yesterday’s WaPo story on the extraordinary recent events at the NAIC:
Insurance regulators from across the country were scrambling yesterday to address a growing threat to insurance companies and the consumers who depend on them.
As the industry’s financial condition deteriorates, many companies have asked their home-state regulators for permission to change the way they measure and report their financial strength. Some regulators have expressed a willingness to grant it.
The requests have been pouring in since the National Association of Insurance Commissioners last week rejected the insurance lobby’s plea for blanket relief.
The public faces the chaotic prospect that insurance companies could be allowed to operate by different rules, and that rules meant to protect their financial stability could diverge sharply from state to state.
The situation is shaping up as a major challenge to the industry’s system of regulation, which is controlled at the state level.
The Consumer Federation of America and the Center for Economic Justice, an advocacy group for poor and minority consumers, yesterday told regulators that granting relief on a case-by-case basis could amount to regulators “anointing winners and losers” and could reward companies that managed their finances poorly at the expense of more successful competitors.
Without objective criteria for granting relief, awarding it on a case-by-case basis “amounts to a political favor” by home-state regulators, according to an e-mail to regulators written by Robert Hunter of the Consumer Federation and Birny Birnbaum of the Center for Economic Justice.
The stakes are high. One big insurer, Allstate, disclosed last week that changes in the way it keeps its books generated an additional $712 million of reported capital.
After a closed conference call yesterday, NAIC held a briefing in which some regulators said that states have always had the power to grant dispensations, and that such exceptions to the rules serve a useful purpose.
“Most of the time it’s going to be because the company is troubled in some part of its operation, financially troubled,” Pennsylvania Insurance Commissioner Joel Ario said.
“A good financial regulatory system has to deal with the individual circumstances of individual companies,” he said.
With its condition deteriorating, the insurance industry has argued that some companies could be forced to shore up their financial strength on highly unfavorable terms unless regulators ease standards governing the amount of capital and reserves they must maintain. The standards are meant to ensure that companies have the ability to cope with unexpected problems while keeping their promises to policyholders.
An industry group has argued that the requirements are excessive, while consumer advocates have argued that relaxing them could put policyholders at greater risk. Before last week’s vote, critics such as the Consumer Federation of America also argued that in considering the plan, the NAIC was using a rushed and secretive process to do the industry’s bidding.
An NAIC panel endorsed a set of relief proposals for blanket industry-wide relief Jan. 27. Then, faced with mounting criticism, the executive committee voted down the plan Jan. 29.
This week, the NAIC leadership circulated a memo to state regulators suggesting that the same plan the group rejected last week serve as guidance for regulators reviewing requests for case-by-case exceptions to the rules.
The conference call yesterday did not resolve the question, and regulators said they would continue to pursue efforts to forge consistency.
Before the call, one regulator described it as ”a huge breach of the public’s trust” and a backdoor way of accomplishing a controversial result that officials were uncomfortable endorsing publicly when the NAIC leadership was called upon to vote last week.
“What they didn’t want to do publicly they are trying to do behind closed doors,” said the regulator, who spoke on condition of anonymity to avoid jeopardizing relations with other regulators. ”I think this jeopardizes policyholders’ security.”
After the call, NAIC president Roger Sevigny, the New Hampshire insurance commissioner, said the discussion was closed to the public partly to avoid shaking confidence in insurers.
“We’re trying to avoid a run-on-the-bank scenario that could only cause harm,” Sevigny said in a briefing for reporters.
“For anybody to think that we would be even contemplating doing anything that would put the consumer at greater risk is ludicrous,” he said.
With due respect to Mr Sevigny the very secrecy and taint to the process shakes consumer confidence to it’s foundations and lessening standard by counting things like deferred income taxes as capital is smoke and mirror that puts consumers at a much greater risk their claims will not be paid.
Steve was kind enough to stop in with the audio link to former Texas Insurance Commissioner Robert Hunter’s testimony were he excoriates the NAIC for their secretive, closed door process. It is a must listen companion to the WaPo story. The less lengthy written testimony of Robert Hunter can be found here.