The National Association of InsuranceCommissioners (NAIC) Executive Committee meeting erupted into abiting referendum on the NAIC itself Monday, with ConnecticutInsurance Commissioner Tom Leonardi motioning to hire an outsidefirm to conduct a corporate-governance review.

Leonardi would like the review to address a variety of so-calledpoor decisions, some by an "imperial presidency."

The motion was rejected by the Executive Committee, and debatewas shut down to the full body after many commissioners said acorporate-governance review might well be needed, but the proposalshould be vetted by the Corporate Governance Committee first.

The events occurred at the NAIC's Fall National Meeting inWashington.

Leonardi acted after sending a letter to commissioners accusingthe NAIC of embarrassing and treacherous governance issues, such asbeing throttled by a small cabal of members, and of being its ownworst enemy through its clumsy, one-sided and fraught process ofdecision-making.

See Leonardi's letter here

The Dec. 11 letter alleged that one of the most egregiousexamples by the Executive Committee was the decision by last year'spresident, Kevin McCarty of Florida, "to give the Federal InsuranceOffice (FIO) one of the NAIC's three seats on the InternationalAssociation of Insurance Supervisors (IAIS) ExecutiveCommittee."

The Leonardi letter took to task the leadership schisms andfactions that have been well-publicized in recent weeks, such assome commissioners' decision to turn down an invitation to a meeting with PresidentObama. The decision was seen by those in certain political circlesas a colossal snub.

Indeed, Leonardi and other commissioners have spoken stronglyabout the whole affair, saying that turning down a sittingpresident is appalling, and makes the NAIC appear doomed if itwasn't before.

Washington Commissioner Mike Kreidler is quoted in the letterregarding the invitation snub, stating, "This could be so bad thatit might be the pivotal point we later recognize that doomedstate-based regulation. Talk about a self-inflicted wound!"

Leonardi continues in the letter, "If we cannot fix thesegovernance issues, then others, including industry and the federalgovernment, would be right to question whether we are up to thetask of regulating the largest insurance market in the world."

He also accused the NAIC leadership of cronyism, and being underthe "undue influence of two former [unnamed] commissioners," whocontinue to undermine the organization, and who are now after CEOSen. Ben Nelson.

Other commissioners interviewed said that they support effortsto hire an outside consultant if needed, but want to take advantageof the process in place: having the Corporate Governance WorkingGroup look at the matter and discuss it during the commissioners'retreat in Arizona in early February.

New York Superintendent Ben Lawsky was the only state regulatorwho seconded Leonardi's motion before non-Executive Committeemembers were prevented from speaking by a point of order. Later,commissioners from California and Illinois expressed disappointmentthat they could not air their views on corporate governance.

California Insurance Commissioner Dave Jones said he was"astounded" that he and others were not given an opportunity tospeak on "an issue of this importance at the NAIC."  

New York is concerned that if the proposal did not go through,the outside consultant might never see the light of day—that itcould be lost in committee.

The New York Department of Financial Services uses outsideconsultants, as does the NAIC, as it has for years on issues suchas principles based reserving (PBR.)

"We are an instrumentality of the states, a $100 millionnon-profit, Leonardi told reporters later. "So we should be openand transparent."

He said the issues had been brewing for some time and that hehad been struggling for two years internally at the NAIC withcorporate-governance issues. He said the letter was supported byhis Governor, Dannel P. Malloy.

Missouri Insurance Director John Huff, whochairs the ad hoc Executive Committee group on corporategovernance, noted that the NAIC continues to work on its governancepractices and embarked on an overall review of them earlier thisyear.

A review and focus on open meetings are big features of theinitial work, Huff noted, saying that the group has begun a reviewof NAIC bylaws and other issues and will incorporate the proposalto seek an outside consultant as the work continues.

Leonardi, in his letter, made it clear he was not a fan of theFIO Director Michael McRaith's role in international matters,although he did not refer to him by name.

Leonardi wrote that, at first, not one NAIC staff member agreedto giving a seat to the FIO on the IAIS Executive Committee, butthe decision had already been made unilaterally before the seat hadbeen given up, and it was then that the "FIO director had theaudacity to demand that he take the seat held by our NAIC CEO."

He said the lack of due process in the appropriate committeesresulted in a blunder that was one of the "most strategicallyimportant decisions/mistakes in the organization's 130 yearhistory."

Various state commissioners defended their roles, and while manysupport corporate-governance oversight and a possible consultant,most at the NAIC meeting did not want to participate by name in thearticle.

Kansas Insurance Commissioner Sandy Praeger, who Leonardi saidmade the "egregious and unfortunate choice" to shut off publicdiscussion, did say that she was using a procedure after thedifferent sides had been aired and it seemed that this debateshould be done through the regular process. Commissioners likePraeger asked what the rush was to hire a consultant before firstnailing down the issues and making proposals.

Leonardi clearly feels attacked, many observers said at themeeting, aware of the changing dynamics in NAIC leadership with theascension of Adam Hamm of North Dakota as NAIC president. LouisianaCommissioner Jim Donelon, who supports Leonardi, sunsets as topleader.

Leonardi made it clear he thinks someone else is running thetable now without regard to procedure, whether through a "cabal,"or through other means that could use a good impartial review andoverhaul in administrative processes.

"My efforts as the chair of the NAIC's International Committee(and as someone widely recognized as a credible and able defenderof and spokesman for our national state-based system of insuranceregulation) have also been undermined by this so calledleadership," Leonardi said.