Governor Spitzer?
Now that Eliot Spitzer has filed suit against American International Group and its former but still legendary leader, Maurice Greenberg, it's tempting to conclude New York's attorney general has fired the final shot from an arsenal that has blown away the insurance industry's status quo.
Such speculation is premature. It will only hold true if he fails in his bid to become governor of New York. Should Mr. Spitzer one day rule the domicile that many of the most powerful insurance entities call home, he will have an additional weapon at his disposal–perhaps more powerful than any he has wielded thus far.
Think about it. If Mr. Spitzer becomes governor, he will choose New York's next insurance superintendent.
Sure, the legislature will have something to say about his choice, and Senate Republicans could be a speed bump should Gov. Spitzer pick a crusader for the post. But don't bet on it. If Mr. Spitzer wins, he will be swept into office on popular support and public gratitude for the tidal wave of financial services reform he initiated.
Who would dare stand in Gov. Spitzer's way should he nominate an insurance superintendent whose mandate is to "clean up" the industry and make sure insurers and brokers don't fall back into any bad habits?
Working under the intense scrutiny of a regulator appointed by Gov. Spitzer would be the ultimate challenge for an industry already reeling from the attorney general's probes into bid-rigging, fee abuse and balance sheet manipulation.
Much has already changed in the industry's standard operating procedures thanks to Mr. Spitzer. The big brokers have abandoned their contingency fee system, and finite reinsurance may have been discredited forever after the coverage was apparently used to cook carrier books.
An insurance superintendent appointed by Gov. Spitzer would no doubt keep the heat on insurers and brokers to make sure they live up to the letter and the spirit of the law, as well as any settlement agreements reached with the attorney general. There will be no coddling of the industry, and no one will get the benefit of the doubt.
There is a method to Mr. Spitzer's "madness" when it comes to regulation. In public speeches around the country, he notes that under President Ronald Reagan, an era of deregulation was launched in which many industries were left to look after their own–relying on the free market to expose and punish unethical behavior.
That effort was, at best, ineffective, Mr. Spitzer argues. He prefers the model of another Republican–Teddy Roosevelt, who was vilified in his time by big business for his trust-busting efforts. I recently read a biography of the Rough Rider and learned his regulatory zeal was based on the protection–not the destruction–of the free market.
Teddy Roosevelt was the first president to flex his muscles to police the business sector. However, his efforts were fueled by a deep-seated fear that if government did not act as referee to prevent greedy, corrupt businessmen from abusing consumers, an enraged public would eventually rise up and demand a radical socialist alternative.
There is no threat of socialism looming today. However, Mr. Spitzer takes his role as public defender very seriously. Should he follow in the footsteps of Teddy Roosevelt as New York's governor, you can expect the appointment of a very aggressive, skeptical insurance regulator likely to make life miserable for insurers and producers alike.
So, if anyone thinks they can simply wait out Mr. Spitzer, they had better think again.
Sam Friedman
Editor-In-Chief
"Should Eliot Spitzer follow in the footsteps of Teddy Roosevelt, you can expect the appointment of a very aggressive, skeptical insurance regulator likely to make life miserable for insurers and producers alike."
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