New York Attorney General Eliot Spitzer’s style of attacking an industry and then settling for money doesn’t sit well with at least one of the country’s insurance commissioners.
Lawrence Mirel, insurance commissioner for the District of Columbia, is critical of Spitzer’s tactics even while acknowledging that the problems the New York official has uncovered need to be investigated.
Speaking before an insurance industry gathering, Mirel disagreed with sweeping charges over contingent commissions because they tend to make the public think all insurance people are “bad apples,” as well as with the practice of settling for money without getting guilty pleas from parties.
“You make strong charges against a rich industry and then sit back and wait for them to come to you and settle,” is how Mirel described Spitzer’s approach.
“Payments of large amounts of money without guilty pleas seems like piracy. I don’t like it. If they’re guilty, they should be prosecuted,” Mirel said. He termed the approach a “plaintiffs’ bar” mentality.
Policyholders pay
“Who pays those fines?” he asked, answering his own question, “Policyholders, of course.”
He said illegal activities such as bid rigging deserve to be pursued, but that there has been an overreaction to the contingent commission contracts that are under attack.
“Spitzer has exposed areas that need to be looked at but it’s not new in the insurance industry and it’s not unique to insurance. Every company finds ways to incentivize the sale of its products,” Mirel said.
“Maybe there should be stricter rules, but that would be legislation,” he added.
Mirel spoke at the annual meeting of the insurance company trade group, the Property Casualty Insurers Association of America (PCI). His remarks on Spitzer came in response to an audience question after his prepared remarks.
NAIC future is ‘cloudy’
In his prepared remarks, Mirel maintained that the future of state regulation of insurance and of the National Association of Insurance Commissioners (NAIC) appear “cloudy and threatened” in his view.He said the NAIC faces a difficult few years ahead. “It will survive but it will not be the same organization,” he suggested.
Mirel said one of the problems with the NAIC is that smaller states, including his own jurisdiction, carry the same weight as big states so that proposals may be accepted by a majority of states but not by key large states such as New York, Texas or Pennsylvania.
“It’s a severe limitation,” he said of the small state domination, likening it to the old Articles of Confederation.
Mirel forecast that the NAIC and state regulation would continue to face two major threats: class action lawsuits and federal regulation.
Class action lawsuits represent a threat because a court in one jurisdiction can affect policy in other states when it rules in a class action suit involving a company that writes in every state.
“Class action lawsuits seek to change policy,” he maintained, arguing that legislators should be setting policy not courts.
He also maintained that federal regulation will become a reality if states do not achieve more uniformity in their insurance rules.
“The NAIC has tried very hard,” he said. “But it’s like we are in a race to see if we can get there before the federal government takes that option away from us.”
SMART opportunity
States have been handed an opportunity to advance their own cause in the new SMART legislation introduced by in Congress, Mirel believes. This measure as currently written seeks to encourage uniformity among states in important rules and practices but stops short of imposing a federal regulator. It also does not include the option for insurers of a federal charter for regulation, an idea that is supported by some insurers.
“SMART is an opportunity that the NAIC ought to embrace so that we can help shape how it goes,” Mirel urged. “The concept is a good one.”
He said the NAIC must “get its head out of the sand” so it can have an impact on the future of SMART and the future of regulation or state regulation will be pre-empted.
The D.C. regulator suggested that elected state legislators involved in insurance matters often turn out to be more of an obstacle than state commissioners to improved uniformity in regulation and that these politicians must be won over as well.
“There aren’t many areas where states have the power like they do in insurance and they are usually reluctant to give that up,” he said.
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