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New Commissioners Enter The Eye Of The Insurance Storm

By Gary S. Mogel

There were no honeymoons for any of the state insurance commissioners who took office during the past 18 months. Each was confronted with thorny issues and tough decisions from day one.

Commissioner Sandy Praeger of Kansas had to deal with more than insurance issues when tornadoes hit her state and caused much human suffering, in addition to about $100 million in property damage.

“We set up temporary offices in three parts of the state to bring our expertise to those sites and help people with their insurance coverage concerns,” said Ms. Praeger. “Our goal was to make sure homeowners were getting the service they should be getting from their insurance companies.”

On balance, insurers did a good a job, according to Ms. Praeger. “One insurer had claim reps on the scene in two hours, but others took three or four days,” she noted. “There were some disputes with a couple of the insurance companies, but nothing major.”

Ms. Praeger served in the Kansas Senate for 10 years before being elected commissioner. She eventually became Senate vice president, as well as chair of the insurance committee. Her legislative background served her well when she was confronted as commissioner by sensitive issues such as credit scoring.

“While I was still in the Senate, my committee established a task force to make recommendations to the Legislature as to how to regulate credit scoring. A law was subsequently passed that protects insurance buyers from discriminatory credit practices, requires an internal appeals process, and provides other consumer safeguards in the use of credit scores.”

Kansas has passed tort reform relating to medical malpractice, so the state is not in crisis mode for that coverage line, according to Ms. Praeger. However, she noted that St. Paul's recent exit from the market has resulted in some availability problems.

Nursing homes in Kansas are being especially hard hit by the tight insurance market, according to Ms. Praeger. “Liability premiums for nursing homes are up 1,300 percent in some cases,” she said. A task force may be formed to see what can be done to control the increases.

Another of Ms. Praeger's challenges as commissioner is maintaining an adequate number of companies to write commercial property insurance in the state's rural areas. That includes areas devastated by the recent tornadoes.

Doug Dean, Colorado's insurance commissioner, is presiding over the transformation of the state's auto insurance system from no-fault back to tort.

“Colorado had the 11th-highest auto premiums in the country. No-fault didn't work here, so the Legislature passed a bill to go back to the tort system,” Mr. Dean explained.

Among the reasons that no-fault failed in Colorado, according to Mr. Dean, was the low ($2,500) threshold to sue for medical expenses and the expensive $130,000 PIP (Personal Injury Protection) limit. Because the opposing sides in the debate could not reach a consensus on how to reform the no-fault system, they decided to scrap it entirely, he noted.

Prior to being appointed commissioner, Mr. Dean served eight years in the state Legislature. He was speaker of the Colorado House of Representatives during his last term, and majority leader before that.

As with many other commissioners, he was recently drawn into the credit scoring controversy.

“Legislation was introduced to modify or eliminate the use of credit scoring in insurance, but it didn't pass,” Mr. Dean said. “But a law was enacted that provides credit scoring can't be used as the sole factor in a decision. However, it can be used as one factor.”

While snow brings skiers and much-welcome tourist dollars to Colorado, Mr. Dean pointed out that it has also brought its share of insurance claims. “We had a record snowfall, the most in nearly 100 years, causing significant problems with flattened roofs,” he said. “The year before, there were wildfires.” Mr. Dean indicated that these events may further tighten the market for homeowners coverage in the state.

Ken Vines was the deputy insurance commissioner of Wyoming for 10 years before becoming commissioner. Before that, he was an attorney in Cheyenne.

Wyoming's medical malpractice troubles are a major concern of Mr. Vines. He noted that currently there are two carriers writing the vast majority of malpractice coverage in the state, The Doctors Company and OHIC, and more competition is needed.

“The state Legislature created a health care commission to study malpractice costs and availability, and the Insurance Department is assisting in that study, which is due to be completed by October 15,” Mr. Vines said. Being considered is a Joint Underwriting Association that would offer insurance to the state's physicians and hospitals.

“Wyoming has no cap on malpractice pain-and-suffering damages,” added Mr. Vines, “as that proposed law was defeated in a legislative committee.” He noted that the state constitution guarantees access to the courts, so a cap might require a constitutional amendment.

Insurers' use of Comprehensive Loss Underwriting Exchange (CLUE) reports is also high on the Insurance Department's agenda.

According to Mr. Vines, many Wyoming consumers are having difficulty obtaining homeowners insurance when they purchase houses that have had water damage claims, which are revealed by the CLUE reports. This is a concern in Wyoming because it has the kind of wind and hail storms that often cause such water damage. The state Legislature has asked about CLUE-related complaints received by the Department, and a proposed bill may be on the horizon.

Wyoming also recently passed a law providing that credit scores cannot be the sole basis for an insurance decision, and adopting other consumer-related protections involving credit scoring. The Insurance Department has the responsibility to enact regulations to be used in administering the new law, said Mr. Vines.

Bolstering Hawaii's captive insurance industry is a prime concern of Commissioner J.P. Schmidt.

The state currently has over 100 captives, and Mr. Schmidt just returned from a trip to Japan to meet with corporate executives that are considering Hawaii as a potential domicile. He stresses the state's solid captive infrastructure, including consultants, accountants and attorneys experienced in captive formation and administration.

Speaking of attorneys, that was Mr. Schmidt's profession before he became commissioner. He practiced business law and also served as the corporate counsel of Maui.

Maintaining a stable market for homeowners insurance, given Hawaii's potential hurricane exposure, is a key concern. “Ensuring good, healthy competition in a relatively small market is a challenge; it's important to get carriers who will write here and stay here,” said Mr. Schmidt.

“Right now we have numerous filings for rate increases in just about all lines. Achieving an appropriate balance so that insurance companies can have the reserves to pay claims and remain stable, while at the same time protecting the consumer, that's the goal.”

Mr. Schmidt was happy to report that the National Council on Compensation Insurance cut a proposed 16 percent workers' compensation rate hike in half after the state Division of Insurance offered convincing actuarial justification for the lower increase.

Commissioner Julie Bowler of Massachusetts keeps a watchful regulatory eye on the financial solvency of insurance companies doing business in her state. She takes an “enterprise” approach to monitoring insurers, instead of the “local level” analysis used by others.

Ms. Bowler explains: “If a property/casualty insurer is writing directors and officers liability and surety bonds, and investing in many of those same companies as well, that may be too much concentration of risk.” She noted that a thorough analysis of an insurer must take into account underwriting, investment and credit risk.

Because she served as first deputy commissioner for four years, Ms. Bowler was already familiar with the state's insurance issues on the day she became commissioner.

Creating a stable marketplace for automobile insurance also occupies Ms. Bowler's mind. “In the past four years, Massachusetts has lost six auto carriers,” she pointed out. “We have to reduce insurers' barriers to entry and attract more capital. There are fewer than 20 insurers writing auto coverage in the state, and five of those have two-thirds of the market.”

Ms Bowler said that, while there is currently not a huge consumer outcry for lower auto rates, she wants to take action now, “at the first signs of stress,” rather than wait for a crisis to develop.

Ann Womer Benjamin of Ohio, as is the case with so many other commissioners, is grappling with medical malpractice reform issues. “Doctors have been up in arms about high rates,” she noted.

Last December, Ohio passed medical malpractice tort reforms, including caps on non-economic damages. Ms. Benjamin is a member of a nine-member commission established by the state Legislature to investigate the effects of the new law.

Ms. Benjamin is a former member of that Legislature, having served in the Ohio House for eight years. Before that, she practiced law for 25 years.

Credit scoring is another hot issue in Ohio. “We have no statute on the subject, but there was recently a final hearing on a department regulation outlining protections for consumers,” said Ms. Benjamin. Those protections include a rule that credit cannot be the sole criterion in underwriting or rating, as well as notice requirements and a process for consumers to correct credit records.

In good news for Ohioans, Ms. Benjamin pointed out that the state has the third-lowest homeowners insurance rates and 15th-lowest auto rates in the U.S. She added that consumer education and protection are high on her list of priorities.

The newest insurance commissioner in the United States is Al Redmer of Maryland, who took office on June 1. Mr. Redmer comes to his new post with substantial government experience, having served in the state House of Delegates for 13 years, including time as minority leader.

“I'm in the process of learning and getting my arms around a $20 million government agency,” Mr. Redmer said. He has targeted Maryland's lack of a competitive insurance environment as one of his key concerns.

“I just spoke to a broker who said carriers are fleeing Maryland,” Mr. Redmer related. According to Mr. Redmer, hurricane exposure in the state's coastal areas is making some insurance companies wary of providing property coverage. “We have to attract more carriers and provide more choices for the consumer,” he said.

As of the date Mr. Redmer assumed office, Gary Steuck of South Dakota was forced to relinquish the distinction of being the newest insurance commissioner. Mr. Steuck assumed his position a little over a month ago. Before that, he had served for 14 years as a manager for a managing general agency.

Attracting and keeping quality carriers is Mr. Steuck's primary goal. “Since South Dakota does not have a huge population, we have a hard time keeping insurance companies in our market. For instance, one company said they couldn't stay where they did not have at least $25 million in premium volume.”

Recently, insurers such as Westfield, Iowa Mutual and Heritage have curtailed their writings in South Dakota, Mr. Steuck said.

To encourage more carriers to enter and remain in the state, Mr. Steuck has adopted what he refers to as the “velvet-covered brick” approach.

“We let the carriers know that we have a friendly attitude and are receptive to their ideas and need for rate increases,” he explained. “But we also let them know that we enforce the laws that protect our consumers.”

Reproduced from National Underwriter Edition, June 23, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.