The Revolving Door Connecting Insurance Regulators with the Supposedly Regulated Insurance Industry

Yesterday’s post, Will Citizens Property Insurance Disputes Be Handled By Government Administrative Judges?, ended with the hope that Florida’s Office of Insurance Regulation would respond to Citizens request for an endorsement by looking out of policyholder interests. In a comment to the blog post, Mike Cappelli commented by saying that Florida’s OIR was a “rubber stamp.”

Last week, Doug Quinn of the American Policyholders Association gave a speech where he raised the issue that many state insurance regulators are simply in a “revolving door” with the same people they regulated. It is almost a pretend situation that they are looking out for insurance consumers. He has academic support for that position.

A 1993 article by the Washington Post, Insurance Regulator’ Revolving Door Stirs Doubts, stated:

Across the country, state governments frequently recruit insurance regulators from the industry itself, and those officials just as commonly return to that private sector, armed with professional contacts they made while in office.

…[A]s major segments of the insurance industry face financial crisis and shaken consumer confidence, there are new questions about whether regulators are sufficiently independent of the industry to enforce regulations.

At meetings of the National Association of Insurance Commissioners (NAIC), a private association that is the closest thing to a national insurance regulatory body, many former commissioners and government regulators are fixtures, either working for insurance companies directly or lobbying on behalf of insurance clients. Of the 10 former presidents of the NAIC from 1981 to 1990, nine either came from or went to positions in the industry.

. . . .

But some federal lawmakers and industry watchdog groups contend that the revolving door creates an atmosphere and relationship that is unhealthy and makes it easier for insurance companies to shape regulation to their advantage.

‘It’s an extremely dangerous situation, first because it undermines the credibility of the process even if nothing is wrong,’ said J. Robert Hunter of the National Insurance Consumer Organization. ‘But it can be a lot worse than that. It can undermine the {regulatory} process itself’ by giving the industry an inside track on possible regulatory actions.

A 1990 study sponsored in part by the industry found rapid turnover among regulators and documented that over five years in the 1980s, roughly half of the commissioners who left office went to jobs in the industry.

In 2016, the Center For Public Integrity published a study, Drinks, Dinners, Junkets and Jobs: How The Insurance Industry Courts State Commissioners, with a key finding:

Half of the 109 insurance commissioners who have left their posts in the last decade have gone on to work for the insurance industry — many leaving before their terms expire. Just two moved into consumer advocacy.

The article further noted:

Consumer advocates and some commissioners say the tight bond between regulators and industry — reinforced by campaign contributions, lavish dinners and the prospect of future employment — diminishes consumers’ voices as insurers press rate increases, shape regulations and scuttle investigations.

‘It’s very difficult at times to take a stand for consumers and have your voice heard,’ said Sally McCarty, a former Indiana commissioner and retired consumer advocate. ‘A lot of commissioners don’t bother doing that for that reason — and they don’t want to alienate the industry. …Many people consider the job an audition for a better-paying job.’

In his speech, Doug Quinn cited a more recent study from 2021, The Revolving Door and Insurance Solvency Regulation, which found the following:

One major concern is that insurance regulation occurs at the state level, which can lead to potentially inconsistent, and thus inefficient, regulation across states. Within each state, insurance regulation is led by a commissioner, who has significant personal discretion. Anecdotal evidence suggests one of the factors affecting their behavior may be the revolving door: Public regulators exiting for jobs in the industry they regulated. Notably, former commissioner Sally McCarty claims her colleagues rarely take a hard stance against the insurance industry, because many commissioners consider the job an audition for a better-paying job.

Are Florida’s insurance commissioner and his staff simply auditioning for a job with the insurance industry and acting as its “rubber stamp?” I do not know. I wish they would show up at consumer events and even listen to the concerns we, as consumer advocates, express. Unfortunately, they simply ignore us and rarely reach out. It is not that way in other states. Many friends like Mike Cappelli tell me that Commissioner Altmaier and his staff simply do the bidding of the insurance industry.

In my opinion, Florida’s method of insurance regulation does not work well. Florida has an unelected insurance commissioner overseeing the Office of Insurance Regulation and a separate agency overseeing the insurance people licensed to sell and adjust insurance claims through the Department of Financial Services. I stated in Did Florida Mistakenly Place an Insurer Into Insolvency, Try to Disqualify the Law Firm That Pointed Out the Mistake and Harm 91,000 Policyholders By Quick and Unnecessary Non-Renewals?:

Over the past month I have been studying how Florida, unlike any other state, separates the regulation of its insurance into two different agencies: the Office of Insurance Regulation and the Department of Financial Services. I am not saying if this is wrong or right, but nobody else is doing it this way. This split approach can lead to a lot of errors if communication is not perfect between the two state agencies.

Doug Quinn with the American Policyholders Association stands up for abused policyholders. Amy Bach and her excellent team at United Policyholders stand up for policyholder rights. Where does your insurance commissioner stand? You may have to go to a party sponsored by an insurance company at a National Association of Insurance Commissioners meeting to find out.

Thought For The Day

Regulatory failings mean that the cost of breaking the law is far below that of obeying it – businesses are happier to pay fines than to control pollution.
—Ma Jun