Wisconsin Commissioner Faces Credit Scoring, Senior Health Issues

It’s not all cheese and football in the dairy land of Wisconsin. Insurance Commissioner Sean Dilweg has had important issues thrust in front of him in his one short year as commissioner. He has been working with staff, consumers, agents and the industry on the issues of credit scoring and health care.

Prior to being appointed insurance commissioner, Dilweg served as the executive assistant to the Secretary of the Wisconsin Department of Administration (DOA) from 2003 to 2006. In addition to managing key agency activities, including external communications, tribal negotiations and state finances, he advised the Secretary of the Department of Administration and Governor Jim Doyle on legislative and policy matters.

In the following interview with Insurance Journal‘s Editor-in-Chief Andrea Ortega Wells conducted at a recent NAIC meeting Dilweg provides his perspective on an optional federal charter, catastrophe plans and other issues.

Insurance Journal: The National Association of Insurance Commission-ers’ (NAIC) report on auto premium comparisons shows that Wisconsin’s auto market was rated as the second lowest in the nation. Is that correct?
Sean Dilweg: That is correct. We have a very vibrant auto insurance market and a property market with a many players. Not many people know E-insurance is domiciled in our state, though headquartered in San Francisco. So we benefit from that competition.

When the issue of mandatory insurance comes up, we simply point to really our low insurance rates on auto. It’s my job as commissioner, to make sure the auto market stays competitive and that companies are all well-reserved and well-capitalized.

IJ: You may be aware that a House Subcommittee is considering what the implications could be with the growing use of credit based scoring, particularly in auto insurance. Can you tell me your thoughts about the use of credit based scoring and insurance?
Dilweg: The insurance industry looked at this issue earlier in 2000 and 2001. We’ve had a policy in place in Wisconsin that I am just starting to review again. I am looking at the issue again because my largest auto insurance carrier, American Family Insurance, just started using credit scoring this year. So obviously, the department has had had a little spike in complaints. We’re looking into to updating our policies.

Roughly for Wisconsin, we need to make sure that a company does not use credit scoring solely in its underwriting or rating process. We don’t want anyone turned down just for a credit score. Turning down someone for insurance must be based on a larger mix of criteria such as how many tickets or accidents he or she may have. We want there to be a balance in how credit scores are used.

IJ: You are fairly new to the position of Commissioner of Insurance — you were appointed by the governor in January 2007. In your experience so far to do you feel that credit scoring use by insurance companies is fair to the consumers?
Dilweg: At this point, I have seen both sides. I have seen the consumer get a better rate because of his or her credit score. I have also seen consumers get upset when they get a higher rate due to their credit score.

I’m still examining the issue. I think the Wisconsin Legislature is going to be examining the issue in the new session in ’08. So, I want to review the complaints coming in and just look at the issue from a fresh perspective.

If we need to make changes, we will. It is a tool. It has some actuary soundness to it. These factors will be investigated more over the next year.

IJ: You briefly mentioned the good health of your property insurance market. Wisconsin is typically a low catastrophe risk state. What are your thoughts about interest by the commissioners to possibly create a national/federal approach to catastrophe planning?
Dilweg: I think it is very difficult for those coastal commissioners that have been hit by high category hurricanes and those commissioners that represent California with its earthquake potential to not look at a national or federal approach.

Obviously, Wisconsin is a very stable environment, outside of a few hailstorms and maybe a tornado every now and then, we don’t have any major issues as it relates to property.

My view of the proposed catastrophe pools is one of caution. I do not want my policyholders paying for the problems that the coastal areas have. As you know, it’s not simply the increase in hurricanes but really the increase in property value, the increase of buildings along the coast that causes concern.

IJ: What are some of the other issues that your agency is dealing with at the moment that may be a concern to you as the insurance commissioner?
Dilweg: I’ve spent a lot of time on the Federal level dealing with the Medicare Advantage problems and health insurance problems.

The issue has sent me to Washington. We have seen a big jump in complaints in the health area as we deal with a Federal program that gives us very little regulatory control. So that’s an issue that has kept me busy on a national level.

Internally, in the state, we are looking at some issues surrounding the sale of annuities to seniors. We have a council set up that deals with suitability and how agents are handling that.

We also have had some good acquisitions in the past. We are a very vibrant insurance state. We’re sixth largest in the nation based on premium volume. We recently had a large re-insurer, QBE, purchase General Casualty, so as a department that acquisition took a lot of our time.

What are some of the concerns regarding the annuity sales and even the Medicare Advantage program?
Dilweg: With the annuity sales, Wisconsin passed suitability standards in the last five years. But the real question is how the companies are training their agents, what standards are the agents living up to? Annuities are very complicated products. Both Medicare Advantage and annuities are extremely complicated. And that’s really the role of the commissioner’s office — to make sure that the consumer is well-informed.

And, as it relates to suitability, especially with annuities, the agent really has to say, “This may not be right for you.” They have to go farther than, maybe, a simple auto insurance sale of a policy. They have to say, “You’ve got this mutual fund, that mutual fund.” And so it’s really those training standards that we’re digging into.

And I’ve been using advisory councils to really reach out, bring consumers in, bring industry in, bring the agents in. And so, I now have an advisory council on annuities that’s spending the next year looking at the issues so that we’ll have some rules and regulations to move forward, and I may use that on a national level.

IJ: Let’s talk about your department. This is your first year in this office. Describe your budget. Has it gone up or down in the past year?
Dilweg: We have a very favorable premium tax. We are second lowest in the nation, so it’s not only our regulatory environment — it’s a very market-based regulatory environment — but we have a low premium tax that is attractive to companies to domicile in our state. It’s been relatively stable over the past few years. We tend to be a donor agency to the rest of the state budget, so they tend to skim money off. So I need to always protect against that and make sure that I’m obviously well-staffed.

I only have 140 employees to regulate our agency. The thing I hear from my companies is: “Why can’t you make Colorado more like Wisconsin, or Georgia more like Wisconsin?” I mean, we do not go in and set individual rates. As a department we simply make sure that the companies are well-capitalized and that consumers are well-informed. Then it’s really the competition of the market that drives what the cost is in our state.

IJ: There are, and have been for many years, discussions about state versus federal regulation, including establishing an optional federal charter. How would an optional federal charter impact the state of Wisconsin?
Dilweg: The optional charter has obviously been brought up, most recently due to some of the problems with Katrina. I think in Wisconsin if you were to go to a federal mode, you would lose some competition. We have some mid-size mutual companies that deal with commercial property and auto that would simply not be able to compete with the larger companies.

I think we’ve been doing good things at NAIC, as far as relating to a commission of states that deals, really, with life policies and long-term care, disability, those types of policies.

But my concern with the federal government as a regulator is you also lose the voice of the consumer. And I look back at the savings and loan crisis of the late ’70s; that was under a federal regulator. I look at the subprime lending collapse; that was under a federal regulator. So I don’t see a good track record from the federal government, and that is a concern to me.

IJ: How you go about communicating with agents in your state, the issues that are important to them and their clients?
Dilweg: I’ve really started to reach out and pull them into some of my advisory councils. I obviously spend a lot of my time visiting with companies, consumer groups, and agents, so I speak to them a lot. My joke to them is, “If I know your name, that’s bad, because it probably means I’ve had an enforcement action against you.”