The Art Of Compromise

It can also mean, for an impatient executive, a needless delay in concluding some business deal. All of this regulation can cost money in places where a company doesn't want to spend it. This is a fact of life, especially for public corporations.

One regulation getting a lot of grief from the business community is Sarbanes-Oxley. A recent report from the National Association of Mutual Insurance Companies said it would cost $300 million for a mutual insurer to satisfy the disclosure requirements under SOX–an imposition that regulators are still considering.

This is not the first, and most certainly not the last complaint about the cost of compliance for regulations that are viewed as overburdensome and overzealous.

Compliance is an issue the insurance industry is very familiar with. Reporting to more than 50 state regulators, the U.S. Securities and Exchange Commission, stockholders and others, there is a lot of paperwork getting shuffled around to make sure financials are handled properly.

Some of these regulatory mandates can be blamed on three scandals–Enron, WorldCom and Adelphia Cable. Executives can thank this infamous trio for what they see as an onerous regulatory remedy where there is no real problem–at least in the eyes of an honest business. Yes, you, the executive of integrity, are being punished for the sins of a few, and they are grievous sins that cost thousands their jobs and many investors millions of dollars.

If legislators did not act at the time, some would assuredly have ended up with the victims of the malfeasance they were charged with correcting–out of a job.

Similarly, the integrity of insurance producers is now subject to question, courtesy of the greed of a few. The outgrowth of the investigation begun by New York Attorney General Eliot Spitzer into some cozy business relationships–where a few misrepresented themselves as honest brokers for their client's insurance risk–has resulted in demands for codified disclosure of how producers make their money. Intermediaries are fighting back.

Wholesalers appear to be winning their argument that they should not have to disclose their compensation to the end buyer because they have no direct relationship with the insured. The National Association of Insurance Commissioners saw merit to their case and gave them a pass in the model law approved to regulate disclosure.

Will individual states follow the NAIC's model law? Probably, but it bears watching.

California Insurance Commissioner John Garamendi introduced disclosure requirements that, some said, if adopted, would have opened the door to endless errors and omissions claims from clients who felt they could have gotten a better price somewhere else, regardless of the quality of the carrier or terms and conditions of coverage.

California is one extreme of regulatory argument. On the other side there appears to be some who believe no new regulation is good regulation.

Several months ago, NAMIC came out with a response to the fervent push for new regulations over the industry. Its response was essentially that we have enough already rules, and we don't need any more.

The "threat of civil and/or criminal prosecution, and the adverse licensure implications associated with engaging in said unprofessional and unethical conduct is enough to protect and safeguard the consumer," said NAMIC. "There is no statistical evidence to support the conclusion that [current] regulation failed to safeguard the vast majority of consumers."

While the vast majority of consumers have been served by producers with integrity, there are those scheming individuals looking for loopholes. They are crooks, and give the industry a black-eye.

At least 12 industry executives were caught trying to find their own loopholes, pleading guilty to charges brought by Mr. Spitzer's office. In an earlier scandal, Michael Segal, the head of the once powerful Chicago brokerage firm Near North, is awaiting sentencing for his embezzlement of a trust account.

Every now and then we hear a story about an agent who absconded with clients' premiums and left the buyer in the lurch when it was discovered there was no insurance to cover a claim. Unfortunately, the existing threat of civil and/or criminal prosecution was not enough to stop them from performing their misdeeds.

White-collar crime is a confidence game that takes advantage of the trust people have in businesses and the individuals who work for them. Regulations are the only way to try to keep the dishonest honest.

There is a new regulatory fight going on in Washington over the proposed State Modernization and Regulatory Transparency Act. SMART would set federal standards for state insurance regulation. Some in the industry are willing to live with such a change in the interests of preserving state regulation while improving regulatory continuity among the states. Others want to gut the current state system and institute a federal option.

One member of Congress–Rep. Richard Baker, R-La., who chairs the House Capital Markets Subcommittee–apparently became so disgusted with some of this rancor that he told the NAIC if they had nothing more than criticism of the SMART Act, he didn't want to hear from them.

The industry–carriers, agents and brokers, and state regulators alike–are crying out for efficiency, but their competing cries for different types of regulatory reform are drowning one another out. A divided industry is undermining reform efforts of any kind.

Too much attention has been paid to the politics of obstructionism. Instead of fighting over the limits of new regulations, maybe it is time for the industry to sit down together and consider a new tactic.

Instead of fighting and complaining, all would be better served if the industry came up with a common answer–the kind of response that satisfies the desire for efficiency and at the same time proves not to be such an onerous blow to the bottom line, as SOX allegedly has turned out to be.

It is time for the industry to practice the true art of politics. It's called compromise.

Assistant Editor Mark Ruquet covers agents and brokers for NU. He may be reached at mruquet@nuco.com.

Quotebox, with mug:

"The industry is crying out for efficiency, but…competing cries for different types of reform are drowning one another out. A divided industry is undermining reform efforts of any kind."

Mark Ruquet