NU Online News Service, MAY 11, 11:30 a.m. EDT
ORLANDO, FLA.–If Bernard Madoff had been under the jurisdiction of insurance regulators, he would have been caught sooner, a National Association of Insurance Commissioners official said here.
Therese Vaughan, NAIC chief executive officer, made that claim in an appearance Friday at the National Council on Compensation Insurance Annual Issues Symposium, where she argued the case for continued state regulation of insurance.
The different state regulators, she said, exercise "checks and balances" and oversee one another to catch malefactors, whereas "when the SEC [Securities and Exchange Commission] made a mistake with Madoff, nobody was there to catch it."
"In our system, we get the regulators watching each other," said Ms. Vaughan.
According to Congressional testimony, the SEC was given repeated warnings but failed to closely examine Mr. Madoff's operation, later revealed as a $50 billion Ponzi scheme.
Ms. Vaughan said by comparison, when Martin Frankel stole $250 million in the course of using a quasi-Ponzi scheme to buy life insurance companies, he was looked at by three or four state insurance departments and his operation was busted when Mississippi Insurance Commissioner George Dale became suspicious.
"So he was caught," said Ms. Vaughan, who noted that state guaranty funds had ensured that "no one lost any money."
For the NAIC, "our Madoff was Martin Frankel," she remarked.
When commissioners find a problem with a multistate insurance operation, "they call the domestic regulator and put pressure on to fix the problem," she said.
While proclaiming the enforcement capabilities of the NAIC, Ms. Vaughan did admit that the downside of a multitude of regulators is "the more cooks in the kitchen, the harder it is to fix the meal."
She acknowledged the need to get approval in the various states for changes has made it difficult for the organization to move quickly and present a single voice in Washington. Progress has been made toward modernization, said Ms. Vaughan, but it has been incremental.
As a former Iowa insurance commissioner who returned as NAIC CEO five years later, Ms. Vaughan said she finds there has been a new tone adopted by the organization, which previously took the position it wanted Congress kept out of its business. Now, she said, "many view Congress as a solution" and support creation of a federal Office of Insurance Information.
Ms. Vaughan said NAIC is engaged in trying to present a national face in Washington as well as working on a more national, cohesive system for regulating insurance.
Ms. Vaughan shared the speaker's platform at her session with Peter Federko, president of the International Association of Industrial Accident Boards, whose mission, he said, is to advance effectiveness and efficiency of workers' comp systems throughout the world.
Mr. Federko, CEO of the Saskatchewan Workers Compensation Board, said the board's focus is on getting injured workers back to work as fast as possible, and to do this it pays the Canadian public health care system extra so it will treat workers ahead of other patients in the system. "We are paying double just to get them in."
But Mr. Federko said that even though the Canadian system is dogged by medical inflation like the United States, its focus on getting workers back on the job quickly pays off. "What we save on the disability is enormous," he said.
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