In my Sept. 3 blog entry, I ran a column by my fellow editor at NU's life and health weekly, Steve Piontek, hammering insurance regulators in general, and the NAIC in particular, for allowing a revolving door to keep swinging between the industry and the insurance departments overseeing the business. I agreed with Steve's take, noting that I couldn't have said it better myself. But this week I published a counterpoint by Caroline Scott, a former general counsel of the National Association of Insurance Commissioners. Read on and let me know what you think.

Ms. Scott, who is also a former general counsel at the Texas Department of Insurance, is currently a partner at Casey, Gentz & Magness LLP in Austin, Texas. Here is her view on this controversy:

Knowledge Needs Trump Revolving Door Concerns

BY CAROLINE SCOTT

Consumer group proposals for a stronger revolving door policy at the National Association of Insurance Commissioners, and editorials demanding tougher standards to prevent the exodus of state regulators and top NAIC officers to the industry and sometimes back again, left me puzzled.

Who do we want to attract to top regulatory positionsor, for that matter, to skilled professional jobs within the insurance departments and the NAIC? Is the public best served with a completely civil service corps that has no real-world insurance experience?

My experience, with 10 years in state insurance regulation, two years at the NAIC and eight years in private practice representing insurers is that many exemplary regulators have come from the industry, and may one day return.

I recall the example of Edward J. Muhl, who during his still active 42-year career in insurance included service as Marylands commissioner and president of the NAIC, returned to industry consulting, was appointed New York superintendent, and finally returned to consulting and arbitration. He brought a solid, real-world sophistication to enlighten many debates over unwieldy policies at both NAIC and the department.

What about the outstanding work of New Yorks current superintendent, Eric Dinallowho, after public service as a New York assistant district attorney and deputy attorney general, went to work for Morgan Stanley and then Willis, and returned to be an excellent regulatorwho has pushed for essential reforms to bring the industry to global standards and has capably handled the AIG and mortgage insurance crisis?

By the way, I didnt see much mention of the fact that former Alabama Commissioner Walter Bell spent a career in the insurance industry before his stint paying back in public serviceincluding the very demanding and unpaid job of NAIC president. When he completed that service and returned to his life-long career, he was met with a chorus of protest. Excuse me, is that really fair?

Regulators and industry leaders move back and forth between government and the industry in many other complex regulatory areas such as utilities, telecommunications, banking, securities and taxation because we cant afford to mess these things up. Subject matter knowledge is essential to keep our most complex industries running smoothly.

At least a dozen current insurance commissioners come from a career in the insurance industry, and a good number of others served as lawyers or other professionals who consulted with the industry. Another handful of current commissioners come from the banking industry. The largest number came from government service, and many outstanding leaders can be found there as well.

In any functional insurance department, the consultative process between the staff and the commissioner should lead to regulatory ideas and policies that are tempered with real world how it works. So a commissioner who comes from government can be informed by the former industry professionals around them, while the commissioner with industry background balances out with the longtime regulators.

But you cannot leave industry experience out of the mix and expect a quality regulatory product.

So, is there an appearance problem with regulators who come before their former colleaguesespecially former subordinates immediately upon leaving office? Sure.

It is reasonable to suggest a cooling-off period, such as three-or-six months, before a regulator can appear in front of their former agencyor, in the case of an NAIC officer, in front of the NAIC. Certainly.

However, it does not serve public policy to make such people unemployable after their service in regulation, because that will be a strong deterrent to attracting qualified people to the very jobs where their experience is needed.

And honestly, how dumb do the consumer representatives think regulators are? Is there some impression that regulators just roll over to a former colleague?

I have been on both sides of the table, as a regulator and as an advocate for the industry, and I can assure you that it doesnt work that way. There may be a few more pleasantries, but the bottom line is that regulators have seen it all before, and they deal with issues on the merits.

I have seen an ex-regulator fall on his face more than once because he hasnt done his homework.

Think about how you would recruit a talented young actuary, accountant or lawyer to an insurance department if revolving door restrictions were too tight:

You will get a broad range of outstanding experience, and will be involved in public policy issues you will never see in depth in private practice. The salary isnt that great, but the hours and benefits are pretty good. And after you get five- or 10 years experience, you are likely to attract industry offers, if you are interested in thatOh, by the wayyou couldnt represent your clients in front of us for two years after leaving.

Think that might have a chilling effect on recruitment?

How about the governor seeking to appoint a qualified commissioner candidate from the industry at age 45:

I know this is a big pay drop for you, but this job means you will be up to your neck in some of the most important policy issues of our state. You will get statewide and even national recognition. You will get to correct some of the regulatory problems you see so acutely nowOh, by the way, you wont be able to go back to work in the industry for two years after you leave, so we hope your retirement is fully funded.

Pretty enticing, huh?

Lets drop the knee-jerk response and think intelligently about how to attract high-quality regulatorswhile at the same time imposing reasonable limits to prevent an appearance of bias when ex-regulators advocate before their former colleagues.

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What do you folks think?

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Is The Regulatory Revolving Door A Good Thing?

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