Stupid Regulator Tricks

Let's say that you're the Utilities Commissioner of your state, responsible for overseeing the conduct of the electric and phone companies. Would it not be an insurmountable conflict of interest for you to resign your post to become president of your local electric company?

Of course it would, and there are laws against it.

Same thing with insurance commissioners, right?

Sadly, no:

Walter Bell was, until last month, the Insurance Commissioner for the state of Alabama, and the immediate past president of the National Association of Insurance Commissioners. One would think that a person in this position would be enjoined from leaving one's post to take a job with an insurance company which does business in one's state.

One would be wrong.

Oh, sure, both the state and the NAIC have rules against this sort of thing, but these rules apparently read:

"Thou shalt not jump directly from thy high and exalted regulatory position to become an executive of an insurance company."

(I'm paraphrasing, of course: "high and exalted" would really read "reasonably but not extravagantly compensated.")

Quick: what's missing from that little law?

If you said "or else what?" you win a cheroot.

Absent any "teeth," such rules are meaningless, a fact which apparently did not escape the notice of the aforementioned Mr Bell. He's now the Chairman of Swiss Re, a large reinsurance carrier which is connected to many insurers which do business in the Yellowhammer State.

In fairness, his response is along the lines of "well, I'm not working for the companies I regulated, just the company that owns the companies I regulated. Big difference, bub."

Well gee, kinda hard to argue with logic like that, right?

And it's not as if his job entails any kind of lobbying on behalf of Swiss Re with his erstwhile colleagues: he'll only "oversee and direct regulatory and public affairs for all of Swiss Re’s North America businesses."

Nope, no conflict of interest there, nothing to see, move along.

And folks wonder why the insurance industry is held in such low regard.

AIG UPDATE: Meanwhile, several days in, neither of the primary life or health insurance agents associations have anything on their sites relating to the recent AIG debacle. Of course, this is no surprise: they're most likely still trying to figure out how to spin this as "a good thing."

And the PIA (which is geared more toward P&C agents) has a news release announcing the acquisition, but no official statement regarding it. Again, why would this obscure, indeed trivial story be of interest to insurance agents?

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Stupid Regulator Tricks

Let's say that you're the Utilities Commissioner of your state, responsible for overseeing the conduct of the electric and phone companies. Would it not be an insurmountable conflict of interest for you to resign your post to become president of your local electric company?

Of course it would, and there are laws against it.

Same thing with insurance commissioners, right?

Sadly, no:

Walter Bell was, until last month, the Insurance Commissioner for the state of Alabama, and the immediate past president of the National Association of Insurance Commissioners. One would think that a person in this position would be enjoined from leaving one's post to take a job with an insurance company which does business in one's state.

One would be wrong.

Oh, sure, both the state and the NAIC have rules against this sort of thing, but these rules apparently read:

"Thou shalt not jump directly from thy high and exalted regulatory position to become an executive of an insurance company."

(I'm paraphrasing, of course: "high and exalted" would really read "reasonably but not extravagantly compensated.")

Quick: what's missing from that little law?

If you said "or else what?" you win a cheroot.

Absent any "teeth," such rules are meaningless, a fact which apparently did not escape the notice of the aforementioned Mr Bell. He's now the Chairman of Swiss Re, a large reinsurance carrier which is connected to many insurers which do business in the Yellowhammer State.

In fairness, his response is along the lines of "well, I'm not working for the companies I regulated, just the company that owns the companies I regulated. Big difference, bub."

Well gee, kinda hard to argue with logic like that, right?

And it's not as if his job entails any kind of lobbying on behalf of Swiss Re with his erstwhile colleagues: he'll only "oversee and direct regulatory and public affairs for all of Swiss Re’s North America businesses."

Nope, no conflict of interest there, nothing to see, move along.

And folks wonder why the insurance industry is held in such low regard.

AIG UPDATE: Meanwhile, several days in, neither of the primary life or health insurance agents associations have anything on their sites relating to the recent AIG debacle. Of course, this is no surprise: they're most likely still trying to figure out how to spin this as "a good thing."

And the PIA (which is geared more toward P&C agents) has a news release announcing the acquisition, but no official statement regarding it. Again, why would this obscure, indeed trivial story be of interest to insurance agents?

Read More

Cavalcade of Risk #61: Submissions Due

Debbie Dragon makes her CoR debut next week. Please help her out by submitting your post by Monday (the 22nd), and be sure to include:

■ Your blog's url
■ Your post's url
■ The post's trackback URL (if available)
■ A (brief) summary of the post

You can submit your post via Blog Carnival or email.

We're scheduling mid-Fall Cavs, so please drop us a line to reserve yours.

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Cavalcade of Risk #61: Submissions Due

Debbie Dragon makes her CoR debut next week. Please help her out by submitting your post by Monday (the 22nd), and be sure to include:

■ Your blog's url
■ Your post's url
■ The post's trackback URL (if available)
■ A (brief) summary of the post

You can submit your post via Blog Carnival or email.

We're scheduling mid-Fall Cavs, so please drop us a line to reserve yours.

Read More

Collateral Damage: AIG and A M Best

A M Best is dead to me. The venerable (if not venerated) insurance rating service has lost whatever credibility it may have had.

Gee, Henry, what brought that on?

I'm so glad you asked. Propitiously, this morning's mail brought the September issue of Best's Review (a magazine published by the company), and a bonus booklet explaining how carrier ratings are assigned. "The Guide to Understanding Insurance Ratings" is chock full of interesting and potentially useful facts, figures and anecdotes, and provides a glimpse "behind the scenes" of how Best ratings are determined.

The Guide walks folks through the rating process, explaining various tests and thresholds that ultimately determine whether a carrier's an A or an F (or somewhere in between).

Problem is, as late as this summer, Best rated AIG as A+ (Superior). In contrast, as of last December, Weiss Ratings had AIG as a B+; they actually downgraded the carrier some 5 years ago. AIG's problems didn't happen overnight, yet they continued to enjoy one of A M Best's top ratings. Talk about asleep at the switch.

But wait, it gets worse:

Near the beginning of the guide, there are stories of some of the most spectacular and well-known carrier failures in the past 3 decades. The Guide does an admirable job describing the events and factors contributing to these massive failures, but never once mentions the carriers' A M Best rating at the time of, um, fizzlement.

I know, though, that at least two of those listed were A or A+ at the time of their demise.

And what was the most common cause associated with these failures? If you guessed "risky investments" and "too much real estate" you win a cheroot.

Sound familiar?

Believe it or not, it gets even more egregious. See if this rings a bell (from "The Guide to Understanding Insurance Ratings"):

"During the last decade of the ... Century, leading life insurers were enjoying a great accumulation of capital as many smaller rivals went under ... soon the insurance companies were flowing assets ... for large scale ... projects. This move essentially put the insurance companies into the banking business, corrupting the nature of what historically had been a conservative industry.

This relationship between the executives of big life insurance companies and ... Wall Street ... did not go unnoticed ... an investigative committee was formed to examine ... insurance companies and make recommendations for regulatory reform."

Sorry for all the ellipses, but I wanted to make this point: all of the above took place in the early 20th Century, over a hundred years ago. Has anything really changed? Has A M Best learned nothing?!

It would seem so.

Read More

Collateral Damage: AIG and A M Best

A M Best is dead to me. The venerable (if not venerated) insurance rating service has lost whatever credibility it may have had.

Gee, Henry, what brought that on?

I'm so glad you asked. Propitiously, this morning's mail brought the September issue of Best's Review (a magazine published by the company), and a bonus booklet explaining how carrier ratings are assigned. "The Guide to Understanding Insurance Ratings" is chock full of interesting and potentially useful facts, figures and anecdotes, and provides a glimpse "behind the scenes" of how Best ratings are determined.

The Guide walks folks through the rating process, explaining various tests and thresholds that ultimately determine whether a carrier's an A or an F (or somewhere in between).

Problem is, as late as this summer, Best rated AIG as A+ (Superior). In contrast, as of last December, Weiss Ratings had AIG as a B+; they actually downgraded the carrier some 5 years ago. AIG's problems didn't happen overnight, yet they continued to enjoy one of A M Best's top ratings. Talk about asleep at the switch.

But wait, it gets worse:

Near the beginning of the guide, there are stories of some of the most spectacular and well-known carrier failures in the past 3 decades. The Guide does an admirable job describing the events and factors contributing to these massive failures, but never once mentions the carriers' A M Best rating at the time of, um, fizzlement.

I know, though, that at least two of those listed were A or A+ at the time of their demise.

And what was the most common cause associated with these failures? If you guessed "risky investments" and "too much real estate" you win a cheroot.

Sound familiar?

Believe it or not, it gets even more egregious. See if this rings a bell (from "The Guide to Understanding Insurance Ratings"):

"During the last decade of the ... Century, leading life insurers were enjoying a great accumulation of capital as many smaller rivals went under ... soon the insurance companies were flowing assets ... for large scale ... projects. This move essentially put the insurance companies into the banking business, corrupting the nature of what historically had been a conservative industry.

This relationship between the executives of big life insurance companies and ... Wall Street ... did not go unnoticed ... an investigative committee was formed to examine ... insurance companies and make recommendations for regulatory reform."

Sorry for all the ellipses, but I wanted to make this point: all of the above took place in the early 20th Century, over a hundred years ago. Has anything really changed? Has A M Best learned nothing?!

It would seem so.

Read More