Sen. Ron Klein (D-Delray Beach) may be swinging at windmills, but he takes seriously his mission to scrap the current regulatory structure of overseeing insurance and return the power to the people. Saying that the system tilts too strongly to the needs of insurance companies over consumers, he believes it's time to reinstate the office of an elected insurance commissioner.
"After three years of skyrocketing premiums, policy cancellations, fraud, neglect, and mismanagement, it's time we give the people of this state the opportunity to decide if they are happy with the current system," he said.
Klein's argument is symptomatic of a growing populist movement that has been expanding in the aftermath of the past several hurricane seasons. Faced with destroyed property and the Byzantine requirements of filing a claim and dealing with state and federal agencies, the reality is that more and more people are looking for someone to take responsibility and, yes, shoulder the blame. A blame that is only going to grow louder as policyholders face higher rates and the potential of assessments to fund deficits in the Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund.
Understanding that frustration, Klein has decided to give voice to the movement by offering up a solution in the form of a high-profile elected officer who would carry the primary responsibility for responding to hurricanes.
"What this state needs is one individual, elected by the people of the state of Florida, vested with the authority and power to hold insurance companies accountable for their actions," he said.
To accomplish this goal, Klein is calling on lawmakers to pass a legislative resolution that would place a proposed constitutional amendment on the 2006 ballot, a provision creating a new Cabinet post of elected insurance commissioner. Additionally, Klein wants a second proposed amendment that would prohibit individuals running for insurance commissioner from accepting campaign contributions from insurers and other businesses regulated by the office.
A quick review of the House and Senate shows that neither amendment has the support to make their way onto the ballot since they would require a three-fifths vote by both chambers. However, depending on the next couple of hurricane seasons, that support may swing more in favor of instituting an elected commissioner. The irony is that if enough voters supported that proposition, they would be reversing their own decisions.
A Constitutional Decision
When Florida voters made their way to the ballot boxes in 1998 and approved a constitutional amendment reorganizing the state's Cabinet by a 55.5 percent to 44.5 percent margin, the conventional wisdom was that voters had little understanding of how the change would affect the regulation of banking and insurance. For decades, the Cabinet had consisted of seven members, which, under the amendment, was reduced to four executive officers, including the governor, the attorney general, the commissioner of agriculture and consumer services, and the new office of chief financial officer. Out of these changes, by far the one with the most far-reaching impact was the CFO office, which merged the former office of state comptroller and the office of insurance commissioner and treasurer.
Prior to the amendment's passing, the office of insurance commissioner was one of the highest profiled in the state due to its direct impact on consumers. In the wake of Hurricane Andrew in 1992, it was the insurance commissioner who presided over the creation of the Florida Hurricane Catastrophe Fund, the residual market, and the painful increases in homeowners' insurance rates. As such, the office engendered a tremendous amount of controversy as consumers balked over rate increases, while the few carriers left writing coverage in the state complained that the commissioner's decisions were, in large part, driven by political considerations.
To what degree these issues drove the passage of the amendment remains debatable. Of the 13 constitutional amendments on the ballot, 12 were approved by voters, including the highly controversial class-size amendment. Be that as it may, voters approved the Cabinet shakeup by a substantial margin. However, as with most things political, the seemingly straightforward constitutional revision soon became mired in the legislature. For although the amendment dictated the two offices should be merged, it was left to the legislature to create the new regulatory structure. And so began a four-year odyssey to determine the future of banking and insurance regulation in time for the January 2003 effective date of the law.
A New Regulatory Formula
The central issue in creating a new regulatory structure for overseeing insurance activities was a sheer issue of power. One initial plan called for both the office of comptroller and treasurer/insurance commissioner to be united under the new CFO. Critics of the plan, however, argued that such a regulatory scheme would have created an executive officer whose political power would arguably exceed the governor's. In the end, lawmakers decided to diffuse that power by investing it in a bifurcated regulatory structure.
First, the legislation called for the creation of a Financial Services Commission, which would consist of the governor and the three other elected executive officers. They also created a new Department of Financial Services to be headed up the CFO, a position to which Tom Gallagher was elected in 2002. Under Chapter 20.121, Florida Statutes, the CFO retained oversight of a variety of state agencies, including the Division of Workers' Compensation, the Division of Insurance Agents and Agency Services, the Division of Insurance Fraud, and the Division of Rehabilitation and Liquidation.
But as far as insurance companies were concerned, the real power rested with the regulator who had the ability to directly affect their operations. Under the law, an Office of Insurance Regulation and Office of Financial Institutions and Securities Regulation were established to oversee the insurance industry and banking industry, respectively. Three members of the Financial Services Commission, including both the governor and the CFO, have the power to hire and fire the heads of the two agencies. By law, the two agency heads must have at least five years of work experience in the upper-management of a private company or state agency.
Although the two offices technically would be housed under the DFS, the agency heads would have the final say over regulatory matters. Under Insurance Commissioner Kevin McCarty, this meant the ability to approve or disapprove rate filings, approve policy forms and rates, oversee market conduct exams, and issue certificates of authority to do business in the state, among other things. Initially, there was some concern that the CFO would still have a tremendous amount of influence over OIR decisions, a feeling based largely on the fact that McCarty had long been a member of Gallagher's inner circle. By all evidence, however, that has proven not to be the case, and the OIR has acted as an independent agency whose decisions appear relatively free from the taint of politics that accompanied almost every decision made by previously elected insurance commissioners.
Reaction
From the insurance industry's position, Klein's call for a return to an elected commissioner places them right back to where they were in the original debate. With few exceptions, the public position of most companies and trade organizations was that the bureaucratic means to regulate insurance was a matter of public policy to be decided by lawmakers. Privately, however, most companies prefer the current regulatory structure. Nationwide, an overwhelming number of states operate under an appointed commissioner. Only 11 states have elected officials, including California, Delaware, Georgia, Kansas, Louisiana, Mississippi, Montana, North Carolina, North Dakota, Oklahoma, and Washington.
Property and Casualty Insurance Association representative William Stander said that the association is taking no position on Klein's main proposal. However, he said, the association objects to the proposed amendment that would prohibit insurance companies or their employees from donating to campaigns.
"To exclude one special interest group from the election process is ridiculous," he said. He noted that in the case of auto insurance, rates are based, in part, on personal injury protection costs. As such, he said, should lawyers, doctors, and chiropractors also be barred from making contributions?
But then the broader issue is who should regulate insurance; the more narrow issue is who decides the future of rate increases. In the OIR's official response to Klein's bill, the OIR directly addressed this issue.
"Regardless of whether an insurance commissioner is elected or appointed, artificially suppressing markets and insurance rates is not a long-term solution for the problems Florida is experiencing. Artificial suppression has adversely affected insurance consumers and policyholders in the past, and would have a destructive impact on the availability of insurance in the long run."
