The insurance industry operates with a high level of oversight from public officials. That's a given. There aren't a lot of serious public policy discussions going on regarding removing government oversight altogether. But while the propriety of some amount of oversight is rarely debated, many questions are debated every day about how much oversight is necessary, what kind of oversight is necessary, and who should provide oversight in what manner.

The question of who provides oversight may seem incidental at first, but it's not. The manner in which different public officials can and do interact with the insurance industry is affected in material ways by their respective roles. Furthermore, the sheer number of government officials vying to exercise authority over the insurance industry has an impact.

Every branch of government

Every branch of government gets involved in some way. Legislators naturally play a fundamental role, passing laws that establish the framework for insurance regulations. Whether they're commissioners or superintendents of insurance, regulators have the most prominent role. As executive branch officials, they take their cues from the statutes enacted by legislators to promulgate regulations, bulletins and related published guidelines; conduct examinations to evaluate insurers' financial status and compliance with rules of market conduct, and conduct related activities.

A 2007 study by the National Conference of Insurance Legislators (NCOIL) raised a number of provocative issues regarding the balance of authority, primarily between legislators and regulators. In particular, it addressed the issue of whether regulators, who are executive branch officials, have encroached upon the role that is properly played by lawmakers in the legislative branch, through the growth and evolution of the National Association of Insurance Commissioners (NAIC).

Courts play a role as well, primarily by interpreting statutes under dispute and assessing when regulators may have overstepped their authority.

Legislative, executive and judicial. That's all the branches of government, so that should cover it, right? It certainly sounds as if that should be enough government oversight for what is, after all, a private enterprise.

But there is more. In a significant number of instances in recent years, state attorneys general have taken it upon themselves to get involved in the oversight of the insurance industry. They have targeted all kinds of businesses, including primary companies, reinsurers, agents and brokers.

Attorneys general are officers within the executive branch of government, just like insurance commissioners and superintendents of insurance. Consequently, there would be nothing unusual about an attorney general working with a state's primary insurance regulator, or the two executive branch divisions sharing information or referring cases to one another. But what does become interesting is when a state attorney general takes action in insurance oversight that goes far beyond what a state insurance commissioner is doing, or tries to take over a regulatory role, even in ways that contradict positions taken by insurance commissioners.

A number of instances

This kind of dynamic has taken place in a number of instances in recent years, most prominently when former New York AG Eliot Spitzer launched a huge investigation into insurance agent and broker compensation. While the investigation itself focused on large commercial transactions, the settlements entered into to resolve the case affected agents and brokers on Main Street as well. Spitzer's investigation, undertaken independently from the state's insurance department, was an extraordinary foray into the oversight of insurance since it was intended to significantly change industry practices.

Similarly, in neighboring Connecticut, Attorney General Richard Blumenthal has launched investigations with the stated intent to materially alter insurance industry practices. Mirroring Spitzer, he has investigated brokers and has gone on to investigate practices in the reinsurance business. Blumenthal has been publicly critical, in press releases and public statements, of the insurance department on a number of matters, including coverage decisions and a decision approving property insurers' underwriting guidelines.

While Blumenthal pushed for press coverage of his conflict with the insurance department, the conflict in Massachusetts between Attorney General Martha Coakley and former Insurance Commissioner Nonnie Burnes became so heated that it generated coverage in the mainstream media on its own. Coakley opposed the move from state-set rates in the state's personal lines auto insurance market to a system of "managed competition" adopted by Burnes and the Division of Insurance. Her office released a report last year criticizing the Division's handling of managed competition and suggesting it would seek more regulatory authority to oversee insurance. Both Coakley and her predecessor have also challenged in court rate decisions made by the Division.

In Mississippi, in the wake of Hurricane Katrina, Attorney General Jim Hood took positions varying significantly with those taken by Insurance Commissioner George Dale, seeking to intervene in cases and criticizing settlement agreements the commissioner made with insurers.

Shared characteristics

All of these situations share certain characteristics, the consideration of which can be instructive. For one, every position taken by a state attorney general was more adverse to the insurance industry, when compared with that of the insurance commissioner. In addition, each episode involved an attorney general who was elected independently rather than appointed by a governor.

At the federal level, and in a handful of states, attorneys general are appointed to their positions by the top executive branch official, the president or a state's governor. But in 43 states, attorneys general are elected independently. This situation, referred to as the divided executive, can result in a kind of regulatory competition in which executive branch officials, who may have different views and may even be from different parties, try to outdo one another. In such cases, a regulated industry like insurance can find itself caught in the crossfire.

In all of the above situations, the attorneys general inserted themselves into insurance matters in a very public manner, so their actions could be perceived as having as much or more to do with scoring political points as opposed to achieving sound public policy goals.

Differing roles

Another point to consider is the very different roles that insurance commissioners and attorneys general play. Attorneys general have wide-ranging jurisdiction over state legal affairs. State constitutions and statutes generally give them a lot of discretion in deciding what actions or positions they can pursue in the public interest. This gives them a great deal of freedom to launch investigations and make public pronouncements. Meanwhile, they are not necessarily ultimately accountable if their recommendations have adverse consequences.

An insurance commissioner's role, on the other hand, is much more focused, and requires much more by way of balancing interests. Commissioners are not only charged with ensuring that regulated entities act appropriately, but are also responsible for seeing that individual entities, and markets in general, are financially stable.

An example can illustrate the differing roles. If a company files for a rate increase, an attorney general can immediately raise questions about the propriety of the filing and announce plans to review it carefully. Ultimately, the AG could argue that the increase is unnecessary. All of these actions put the attorney general in a favorable light in which the public official appears to be fighting for the interests of consumers.

The insurance commissioner, meanwhile, with responsibility to approve or disapprove of the filing, cannot make any initial announcement. And in reviewing the proposal, the commissioner must carefully consider the circumstances. For example, underlying costs may have increased so that an increase is warranted, or the increase may be necessary for the financial strength of the company. Ultimately, approving the rate increase may be the best decision for the public interest.

In addition to illustrating the different roles of commissioners and attorneys general, this example shows how attorneys general can achieve significant political gain by taking on insurance issues. Since the insurance industry is not held in particularly high regard by the public, it is an easy target. Recent history, including the instances described above, would suggest that any and all participants in the industry, including agents and brokers of all kinds and insurers and reinsurers alike, can expect more, rather than less, attorney general interest and involvement.

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