Kentucky Weathering AIG and Ike Hurricanes

Sharon P. Clark, a 17-year veteran of Kentucky state government, was appointed commissioner of the Kentucky Department of Insurance (DOI) in June. Clark’s experience includes five years as director of the Consumer Protection and Education division at DOI. She also served three years in positions for the Kentucky House of Representatives before accepting a position in the Finance and Administration Cabinet last December. Clark’s career also includes assignments at the Public Service Commission and the former Workforce Development Cabinet.

In this interview with Insurance Journal‘s Ken St. Onge, at the recent meeting of the National Association of Insurance Commissioners, Clark discusses how Hurricane Ike and the crisis at American International Group have affected her state. Clark believes that insurance companies and consumers will weather both storms. She also discusses workers’ compensation and insurance fraud.

What do you think about the Fed’s decision to bailout AIG? Was it the right decision?
Clark: From a state insurance regulator’s perspective, we were concerned about the effect on insurance companies. However, they have been in very good shape financially. They’re solvent, they’re able to meet their claims and the book of business goes on.

For AIG as the parent company, obviously, that was a federal decision, but the impact that it would have had worldwide would have been very significant. So it’s understandable that they’re on a bench.

How do you think policyholders in your state will be affected?
Clark: They will be fine. We are monitoring the financial conditions of the insurance companies through our financial exams. We have every faith that the companies are in good standing, the policyholders will be in good shape, the claims will be paid and business will continue as usual.

What should agents know about AIG and what it means for their policyholders in Kentucky?
Clark: Sometimes agents will use opportunities like this to try to secure business. We have been very proactive in Kentucky; we sent out a blast e-mail to all of the resident agents reminding them that AIG, the parent company, was in financial difficulty but that the insurance companies were in good shape.

We also reminded them (agents) of Kentucky’s defamation and twisting statutes. We don’t want them going out there and approaching a policyholder with scare tactics.

How will this AIG loan affect the debate over state regulation for insurance?
Clark: As far as I’m concerned, there’s not really a debate from the state level. We have been an organization for over 100 years. The state regulators do an excellent job. We are on the ground, we’re there first hand, we know what’s going on and I have every comfort level in the state regulation versus federal.

How is Kentucky faring after sustaining damage from Hurricane Ike?
Clark: It was rather unusual. We usually do not have the impact – maybe some rain that we receive from hurricanes. But in this particular instance, we had some very significant wind damage following the hurricane. Several areas of the state were impacted.

How has Hurricane Ike affected discussions in Kentucky over disaster preparedness?
Clark: Kentucky has been very concerned with disaster response. In fact, when I joined the department I became the first director of consumer protection and we started a disaster response team.

I have had the privilege of going out and responding first hand – door-to-door – to meet consumers that have been impacted. We are very cognizant of disaster response. We are trying to contact all of the local officials to find out if adjustors are responding promptly.

We have emergency statues that we can put into place to allow unlicensed adjustors to come in. We have had very good luck with it. Insurance companies were in the field and addressing consumers right away.

Kentucky is a major mining state. Are there any developments in terms of mine safety in Kentucky?
Clark: The mine safety legislation comes through the Natural Resources Committee that we have through the Legislature and we (Department of Insurance) are not directly impacted. However, we are impacted by workers’ comp claims for the mine industry that have decreased in each of the last three years. I think it’s a direct result of the mine safety issues that we have addressed.

Kentucky also has a Mine Subsidence Fund run by the Insurance Department. There is a special endorsement that consumers could pay into, both for personal property or for commercial property.

And as a result, after a mine has been closed and if there is a pending claim due to that mining operation, there is a fund in place to pay those claims.

It’s kind of an unusual situation, that many states do not have – something that affords a lot of protection for people.

How is the workers’ compensation market in Kentucky?
Clark: We have a strong workers’ comp program. In past years, we’ve had some issues and concerns but we have admitted several companies recently and the market is strong. We’ve had rate decreases which, quite frankly, have had an impact on economic development efforts. We are very satisfied with the market.

Let’s talk about insurance fraud detection. Do you have an insurance fraud detection program in Kentucky, and if so, how does it work?
Clark: We have a very aggressive unit. We have the capability; they (the fraud unit) have full authority, so obviously we are all over the state. We have a very cooperative effort with the Feds, either through the U.S. Postal Service or through the U.S. Attorney’s General office.

The biggest issue we are facing now is Internet fraud. And it is so difficult to trace. You go after them and when you get a lead and when you start developing and gathering evidence, they can shut down and two days later open up on another site.

It’s a problem that costs all Americans so we are aggressively pursuing it.

Obviously, Insurance Journal‘s readers are insurance agents. How do you characterize your department’s relationship with agents in the state?
Clark: I think the agent’s role is very important. I many instances, people cannot tell you what company they have insurance with. They’ll say I have insurance with John Brown, or with Ken Smith, for example. And so they have a very good relationship between the agent and the policyholder.

It’s very important, and I’ve always warned, encouraged and chastised insurance companies to promote very good communication with their agents. Because they’re on the ground and they’re the ones that consumers contact when there’s an issue.

Topics Catastrophe Natural Disasters Fraud Agencies Legislation Workers' Compensation Hurricane Kentucky AIG