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

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

Knowledge Needs Trump Revolving Door Concerns

BY CAROLINE SCOTT

Consumer group proposals for a stronger revolving door policy atthe National Association of Insurance Commissioners, and editorialsdemanding tougher standards to prevent the exodus of stateregulators and top NAIC officers to the industry and sometimes backagain, left me puzzled.

Who do we want to attract to top regulatory positionsor, forthat matter, to skilled professional jobs within the insurancedepartments and the NAIC? Is the public best served with acompletely civil service corps that has no real-world insuranceexperience?

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

I recall the example of Edward J. Muhl, who during his stillactive 42-year career in insurance included service as Marylandscommissioner and president of the NAIC, returned to industryconsulting, was appointed New York superintendent, and finallyreturned to consulting and arbitration. He brought a solid,real-world sophistication to enlighten many debates over unwieldypolicies at both NAIC and the department.

What about the outstanding work of New Yorks currentsuperintendent, Eric Dinallowho, after public service as a New Yorkassistant district attorney and deputy attorney general, went towork for Morgan Stanley and then Willis, and returned to be anexcellent regulatorwho has pushed for essential reforms to bringthe industry to global standards and has capably handled the AIGand mortgage insurance crisis?

By the way, I didnt see much mention of the fact that formerAlabama Commissioner Walter Bell spent a career in the insuranceindustry before his stint paying back in public serviceincludingthe very demanding and unpaid job of NAIC president. When hecompleted that service and returned to his life-long career, he wasmet with a chorus of protest. Excuse me, is that really fair?

Regulators and industry leaders move back and forth betweengovernment and the industry in many other complex regulatory areassuch as utilities, telecommunications, banking, securities andtaxation because we cant afford to mess these things up. Subjectmatter knowledge is essential to keep our most complex industriesrunning smoothly.

At least a dozen current insurance commissioners come from acareer in the insurance industry, and a good number of othersserved as lawyers or other professionals who consulted with theindustry. Another handful of current commissioners come from thebanking 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 processbetween the staff and the commissioner should lead to regulatoryideas and policies that are tempered with real world how it works.So a commissioner who comes from government can be informed by theformer industry professionals around them, while the commissionerwith industry background balances out with the longtimeregulators.

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

So, is there an appearance problem with regulators who comebefore their former colleaguesespecially former subordinatesimmediately upon leaving office? Sure.

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

However, it does not serve public policy to make such peopleunemployable after their service in regulation, because that willbe a strong deterrent to attracting qualified people to the veryjobs where their experience is needed.

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

I have been on both sides of the table, as a regulator and as anadvocate for the industry, and I can assure you that it doesnt workthat way. There may be a few more pleasantries, but the bottom lineis that regulators have seen it all before, and they deal withissues on the merits.

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

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

You will get a broad range of outstanding experience, and willbe involved in public policy issues you will never see in depth inprivate practice. The salary isnt that great, but the hours andbenefits are pretty good. And after you get five- or 10 yearsexperience, you are likely to attract industry offers, if you areinterested in thatOh, by the wayyou couldnt represent your clientsin 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 qualifiedcommissioner candidate from the industry at age 45:

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

Pretty enticing, huh?

Lets drop the knee-jerk response and think intelligently abouthow to attract high-quality regulatorswhile at the same timeimposing reasonable limits to prevent an appearance of bias whenex-regulators advocate before their former colleagues.

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What do you folks think?