The Washington Office of the Insurance Commissioner is a vigorous protector of consumers under the leadership of Commissioner Mike Kreidler. From maintaining a trust relationship between consumers and insurers, to implementing new legislation to reduce medical malpractice, Kreidler said it’s his job to make sure consumers have access to reasonably priced insurance products that provide the service they are purported to do.
With that in mind, the OIC is not shy about acquiring the tools to do its job Kreidler said. For example, the office recently developed a dedicated anti-fraud unit and passed legislation to give itself access to medical malpractice claims so that it could analyze the data and more proactively manage the system.
In this exclusive interview conducted by Insurance Journal’s Andrew Simpson at a recent meeting of the National Association of Insurance Commissioners, Kreidler discussed many of the measures his state is using to protect the insurance market and — just as important — consumers of the system.
What do you think the role of an insurance commission is?
Mike Kreidler: The principal role is to make sure that the market works; that you have insurance products that are reasonably priced that provide the service that they’re purported to do with the policy; and that the company has the wherewithal to stand behind anything they’re selling, that they have cash reserves and are adequately financed.
Do you feel you have the tools in Washington to get that job done?
Kreidler: We do a very good job. We’re a vigorous consumer protector in the state of Washington, we have strong tools and we’re not shy about going to the legislature to make sure if they are perceived to be inadequate, to enhance those tools.
You have a new tool to fight fraud in the state. Could you talk a little bit about what’s involved in that?
Kreidler: We were one of the very few states that did not have a fraud unit that deals with insurance. In fact, 41 states have an anti-fraud investigative unit of one sort or another. We joined them this year with the creation of our own anti-fraud unit, and it means that we’re no longer a green light to those who commit organized insurance fraud. We’re in a position where we can make sure we do an adequate investigation, and we can do the prosecution. We do so by working very closely with the companies, frequently being the source of referrals where fraud is suspected, working for the National Insurance Crime Bureau for other statistics and information, and working with our state patrol, our local prosecutors and our state attorney general — all being part of the team to combat organized insurance fraud.
When does that go into effect?
Kreidler: It’s became effective July 1 of this year, but it’s going to take us a while — probably not until the first part of next year — before we’re up and running. We’re going to start very humbly. There are a lot of report-back mechanisms. We want to make sure we can have some real successes that we can point to as a part of what this new anti-fraud program does.
You’ve been deeply involved in the resolutions on brokerage compensation and disclosure. Can you talk about how Washington has dealt with those issues?
Kreidler: Washington was in a little bit better position than many other states for a couple of reasons. One is we never adopted the model producer act, which meant that we could differentiate agents and brokers. That was an advantage because of the issues related to brokers who supposedly collect their money from their clients as opposed to agents who receive compensation from the company for whom they’re representing and marketing a product. We could make that differentiation. Not all could.
The second reason is that we had a statute for property-casualty that specifically said that there was an obligation on the part of the broker to disclose where they were getting their money. So there was an obligation already in statute. Most states didn’t have a statute like that.
We did a comprehensive examination just to be sure. It came back and, in fact, showed that we didn’t have any indications of a degree of problem that had been manifested particularly in the state of New York and in other places around the country.
So for the most part people were complying with the law?
Kreidler: That’s right. No smoking guns were identified.
On several occasions, you described insurance as a business that’s built on trust. I wonder if you could elaborate on that.
Kreidler: [It works] very much in the sense that if you’re talking about banking, for example, that’s where the bank has loaned you some money and they’re wondering whether you’re going to pay on the loan. In the case of insurance, it’s based on a promise, which involves trust. They’ve sold you a policy; they said if you file a claim, they’ll recognize the claim and have the resources to back it up. So it involves trust.
Anytime you have trust, we need to make sure consumer protection is vigorously adhered to — much more so and much more important in my mind for insurance than it is for banking. Trust and consumer protection goes hand in hand.
A big part of that would be complying with the laws, such as the brokerage compensation disclosure.
You have some new reforms coming along in the market for medical malpractice in Washington. How are those going to help?
Kreidler: We passed a reform bill in Washington that had affected a number of areas: patients’ safety and tort reform, and in our case, insurance reform. The insurance reform portion dealt with closed claims in medical malpractice. Most of the claims are closed claims, meaning that they are not open to the public. More than 80 percent are closed by the court, and that means we really don’t know what’s happening in those claims, what caused the claim, how much of it was attributable to economic as opposed to non-economic losses.
It became very much a debate between the trial lawyers and the doctors who would come up with opposite conclusions from the same data. We’re in a position now where we’re going to be able to have hard data, [access to the closed claims data], to be able to identify the source of where the problems are and target any solutions in the future. We’re at the cutting edge from the standpoint of having the kind of information that’s necessary to know where we go when we tackle the issue of medical malpractice insurance reform.
Has it been a volatile market until now?
Kreidler: It’s been a volatile market for medical malpractice insurance, really starting in late 2000, 2001, 2002. By 2003, it had started to moderate. The year 2004 was a lot better, and 2005 that’s what we’re finding out. Rates are going down, availability is going up. But this tends to be a cyclical market, and it means that another 10 years from now, we’ll go through one of these market cycles and people will be saying we have a medical malpractice insurance crisis because of the changes in market conditions. Now we’ll have facts to identify what or if we need to make changes in the system as a result of the problems.
Tell us the story of Ethel Adams and changes in state law as a result of that?
Kreidler: Ethel Adams was an interesting condition. It involved uninsured motorist coverage, which is an optional rider to your insurance policy. She not only had it personally for her own automobile insurance, she was working for her employer and her employer had commercial insurance that also had uninsured motorist coverage.
Ethel Adams was making deliveries for a dental clinic and, in the process of doing that, a car coming in the opposite direction was hit from behind by an ex-boyfriend that jammed his ex-girlfriend’s car into oncoming traffic and impacted Ethel Adams. The insurance company said that Ethel Adams’ claim for uninsured motorist coverage did not have to be paid because it was an intentional act by the ex-boyfriend to hit his ex-girlfriend, which jammed [Ethel Adams'] car into oncoming traffic, and therefore they didn’t have to pay the claim.
It was truly an exceptional interpretation of insurance law in the state. But there was a weakness in the statute. We recognized that [and] the company eventually paid, because it became clear the public did not understand how the system operated. Some of the claims attorneys for this company had come up with an interesting interpretation. So we modified the statute after a little bit of effort.
I would say that we now made it clear that a company does have an obligation to pay under a circumstance like Ethyl Adams, and I think we were able to do so largely because we had a very well-publicized case so that you could more or less kind of keep the attorneys for insurance companies and the trial lawyers in line to actually take care of Ethel’s problem.
If the case weren’t highly publicized, I’m not sure we’d have had the ammunition to be able to battle off either side to come up with a resolution, because it’s a very, very sensitive issue in insurance law.
It sounds like the insurance industry’s image might have taken a hit in that.
Kreidler: There is no question that the company that denied the claim took a hit. They were taking a real beating in Washington newspaper, editorials and talk radio. But it was in the process of going national when it became interesting. “Good Morning America” and the “Bill O’Reilly Factor” contacted this insurance company about wanting to do a story, and the towel was thrown into the ring rather quickly.
You are hosting a special summit in Seattle. Could you tell us about that?
Kreidler: It involves climate change. Increasingly, we’ve heard about the problems of global warming and climate change. More and more, we’re hearing about it in connection with insurance, particularly the reinsurers.
There are only a few very large reinsurers nationally, internationally, and as a result of that, I think they’ve taken much more of a global view. Now, we’re trying to bring along primary insurers so that they develop policies and positions. We’re going to have an opportunity to see if the primary insurers will become more engaged in this issue, from the standpoint of mitigating, and so that they don’t abandon markets but instead find ways to mitigate the impact of climate change. [We also want to see if they will become engaged] to look toward what might be considered solutions, meaning, what can help minimize the causes for climate change? I think we’re going to do a good job of identifying some of those factors and helping to bring along the primary insurance industry.
Has there been a lot interest among the industry?
Kreidler: There is a lot of interest. At the NAIC level, we just created a task force. I’m chairing that with Tim Wagner from Nebraska, so we have a Midwesterner and a West Coaster (me). There’s considerable interest from the standpoint of the industry, and certainly from a lot of other interested parties, as to what is being done.
We potentially have a chance to make a significant difference, from the standpoint of the kind of prevention or solutions, or the investment portfolios that companies have. If companies or investments implement some modification that minimizes the impact of change for global warming or climate change, that could have a very pronounced impact. Companies have significant financial resources that could be part of that investment portfolio.
That’s an issue we’ll have to follow up with you on.
Kreidler: I look forward to it.
Home to mountains and lakes, Washington was the perfect place to hold a climate change summit to encourage primary insurers to help mitigate the problems of global warming.