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Having served six years in his present office, Arkansas Insurance Commissioner Mike Pickens has had an opportunity to see a number of changes in his state over the years. Pickens recently sat down with Insurance Journal to discuss issues of importance to Arkansas, federal vs. state regulation, the national medical malpractice crisis and much more. Below are excerpts from that interview.
DT: Could you give me an overview of the Arkansas market right now?
MP: Our P/C market is still hard. Over the last year, we’ve seen a fairly significant tightening up of the personal lines market, particularly homeowners. We were one of the states that State Farm placed a moratorium on new business in about a year ago. I expect they’ll announce soon that they will get back into the market. They have gotten two substantial rate increases totaling more than 40 percent in the last year or so. Along with our market hardening up, we’ve seen companies tightening up on their underwriting restrictions.
We’ve also had a lot of inquiries about credit scoring. Arkansas passed legislation this year to address that issue. We basically passed the NCOIL model legislation with some tweaks. We hope this will stabilize any concerns about the particular insurer practice.
We’ve also heard some concerns from independent agents about available markets and capacity. One agent told me recently they were having some homeowners concerns. They were down to two or three markets. They hope the situation will loosen up in the next year or so.
DT: Has the mold problem been a big issue in Arkansas?
MP: We have seen an uptick in mold claims, but not anything like Texas or some other states. One thing insurers’ are now doing, is that if someone has a water-related loss, they are scrutinizing much more strictly whether or not they’ll continue to write that risk than they have in the past. We have not allowed any personal lines exclusions for mold coverage to date. We’ve basically told companies we want them to keep in place the same coverage they had in the past in that if a mold claim is directly related to a covered cause of loss, they need to pay the claim.
What we may end up having to do with some of the construction concerns is to allow companies to exclude mold coverage above a certain amount, with a buyback option for consumers who want additional coverage.
DT: Any issues with workers’ comp in the state?
MP: Our workers’ comp market is still competitive and doing very well. We’ve seen very small rate increases. I think we’ve been successful because of our 1993 workers’ comp reform law, which was basically a tort reform type measure. It redefined compensatory injury because some court decisions expanded that definition. It put in place some mandatory loss control and worker safety programs and has had a remarkable effect on our market. In 1993 we had maybe three carriers in the voluntary market and now we have over 200, so that law has helped bring back competition and lower prices.
Really, our two biggest areas of problems right now are medical malpractice insurance and nursing home liability insurance. With the nursing homes, we have no companies that are writing coverage on anything more than a lose-one risk, replace-one risk, basically a zero-type growth basis. We have some surplus lines coverage available, but it is costly. That is really because of a number of lawsuits filed against nursing homes in the last three or four years. We had a Circuit Court case where a jury awarded $78 million to the family of a 93-year-old deceased person on some very questionable facts. People were hopeful the Supreme Court would throw out the verdict or reduce it substantially. They only reduced it down to $26 million, which still makes this nursing home case the largest single personal injury verdict in our state’s history. We’ve heard from a lot of nursing home liability insurers that they’re concerned with this decision.
During our session, we passed a tort reform law that made some changes to the joint several-liability provision of our laws. Also, we made some changes that tightened up the venue provision and also put caps on punitive damage. No caps on compensatory or economic damages, but it did cap punitive damages at $1 million. We’re hopeful this will have a positive impact on the medical malpractice and nursing home market.
DT: What’s been the greatest challenge for you since you took office?
MP: One thing when I first came to the department was improving our financial solvency division. At the time, we were not fully accredited by the NAIC, so we made a number of changes in our finance division and are now fully accredited. The use of technology has also been something we’ve worked on. When I first came here, we had maybe less than five personal computers. Now, we have won the NAIC Technology of the Year Award on two occasions. We can now accept all rate and form filings electronically. In addition to making us more effective and efficient as an agency, we think there have been benefits to companies and consumers by us beefing up our financial solvency division and increasing our use of technology.
DT: How have you battled insurance fraud?
MP: I’m glad you mentioned that. We passed a law in 1997. We had a workers’ comp fraud division when I came here and we thought we needed the ability to investigate all types of insurance fraud and now we have this ability. In 1999, we passed a law that made our fraud investigators law enforcement officers, so now they can make arrests, they can serve arrest warrants, and they can investigate all types of insurance fraud.
DT: What is a “typical” day for you?
MP: I’ve been the NAIC president since January, so that has taken a lot of time. Legislation has been a big focus for us, not so much passing new laws. For example we revamped our entire insurance code and modernized it. We have eliminated a lot of duplicative laws and regulations. We cut our regulatory fees by about $850,000 and still have plenty of money in our trust fund.
DT: What are your thoughts on state vs. federal regulation?
MP: It is an issue commissioners are concerned about. We all agree we need to modernize the state regulatory system. We’ve done a lot of things to do that. We passed the Producer Licensing Model Act where a non-resident producer can now more easily get licensed across state lines. We all passed privacy regulations and laws to protect personal health and financial information of consumers.
Speed to market has also been a big issue that the House Financial Services Committee and Congress have focused on. This has required us to do things at the state level to respond to their concerns. One of our big projects from this point forward is to educate state and federal policymakers about the benefits of state insurance regulation for consumers, agents and companies. We also need to tell them about the concerns we have with the federal charter proposals.
DT: What would you say to potential P/C insurers about coming to Arkansas to do business?
MP: I think they would find we have an excellent climate for doing business in this state. We have a good regulatory agency. We insist upon compliance with our laws, but we are fair and reasonable. We believe in a free market and believe a good, competitive market is the best regulator of rates. Our agent force is great in this state and we have a good legislative environment. Our governor has been very supportive of competition and has been very supportive of our work here at the department. We try and take politics out of insurance regulation and to do what is right for consumers and our market.
To comment on this story, e-mail dthomas@insurancejournal.com.
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