The Commissioners: Julie Mix McPeak

March 12, 2007

Kentucky competes in captive horserace; keeps eye on workers’ comp

Julie Mix McPeak, an attorney with more than a decade of experience in state government, was appointed executive director of the Kentucky Office of Insurance (KOI) by Gov. Ernie Fletcher last June. McPeak succeeded Glenn Jennings. The following is an edited version of the interview with Insurance Journal, one of 15 with state insurance regulators conducted at the December meeting of the National Association of Insurance Commissioners. The complete video interview with Director McPeak and others may be seen at www.insurancejournal.com/broadcasts.

IJ: Kentucky has a pilot program to help small business owners pay for health insurance for their employees called the Insurance Coverage Affordability and Relief to Small Employers. Why did your state start this and how does it work?
McPeak: ICARE began as a project through our Legislature and our Governor to address the issue small businesses face in Kentucky with providing health insurance for their employees. About 90 percent of the businesses in Kentucky qualify as small businesses. We felt like there were a lot of Kentucky citizens who would be affected by an assistance program to the employers that would allow them to offer health insurance at a reduced cost to them.

It’s administered by the state. The employer, if they have not had insurance in the last 12 months for their employees, would choose a qualified health insurance plan, would apply to the Office of Insurance for the health care incentive payment, and then the state would reimburse the employer a certain amount per employee based on the coverage. The amount would increase slightly if there was someone with a high cost condition in that small group.

IJ: Kentucky has been active in recent years in the captive market. Are you hoping to encourage more captives?
McPeak: Absolutely. We are about to bring a captive manager on board for the first time to truly interface with the captives that already exist that might be domiciled in other states and also with some new companies that might be interested in forming captives. We think Kentucky is a good place to domesticate as a captive. We have firm but flexible regulation, and we have a lot to offer captives. We’re proud to say that we have about eight captives approved in the state right now, but we have probably twice that many applications in various stages of completeness.

IJ: Why are captives important?
McPeak: We just think it’s a nice alternative to the self-insurance ability. We have such large corporate citizens like Papa John’s and Ford Motor Co., UPS, that we think could really benefit from the captive program.

IJ: Can you talk about the climate for workers’ compensation in your state?
McPeak: We’re very pleased that our loss cost was actually a decrease for this year of roughly 9 percent or so on average. However, as you said, we’ve had some occurrences that might cause that decrease to be rather short-lived. In fact, our Legislature in the last session passed a bill that said, really trying to encourage mine safety, that if the Department of Mines and Minerals certifies that a mining area that is drug free or compliant with safety procedures, that they should have a credit against their workers’ compensation insurance coverage. We’re implementing that as well.

IJ: Are you anticipating a large raise in workers’ comp rates? You say it may be short-lived; do you think that?
McPeak: I think that it might be. I hope that that’s not the case. I hope that the rates will stabilize. You can’t always expect a 9 or 10 percent decrease, but if you could maybe correct the amount of increase, that would be helpful too. I’m hopeful that we’re not going to see a 10 percent increase over the next year, but probably something more along a rate hold.

IJ: Your next legislative session may be dealing with a bill pertaining to agent compensation within the state. Can you talk a little bit about that bill?
McPeak: The independent agents of Kentucky came to us and said that certain members of their population would like the ability to amend their rate commission structure from the rate that was on file and approved at the Office of Insurance. What they are really seeking to do is for the more sophisticated buyer change the commission structure to be a flat fee payment when that seems to be more appropriate for the level and types of coverage that insurance consumer needs. On the other hand, you have some other small agents that are saying that they would not like to have that ability. They would like to be required to stay with the rates that were on file at the Office of Insurance. Our statutes really don’t contemplate allowing agents to vary from that commission structure.

IJ: Where will the department stand?
McPeak: Of concern to us is we have some statutes that very clearly specify the fiduciary obligation for whoever is paying that agent. If that agent is being paid by the consumer, it looks a little bit more like someone that is licensed as a consultant in Kentucky and not as an agent. The agent commission generally comes from the insurer. We’re going to be looking very closely to make sure that everyone in the transaction is aware of the obligations of the agent and the duties that are owed to each respective party from that agent.

IJ: Recent multi-state settlements with large insurance companies have banned contingent commissions for agents. Do you think that they could have any impact on your own state’s public policy?
McPeak: I think they probably are impacting Kentucky, even though we haven’t been as active on that issue, as you mentioned. I think that we are receiving the benefit of some of the agreements and settlements that have been made with the larger companies because the agents that write for that company in Kentucky are complying with those agreements. Philosophically, I am certainly not opposed to agents disclosing to consumers what they might be paid for a certain transaction. I always have a concern that we are fair and reasonable to the agent and are not asking for something that is extraordinary or difficult for them to comply with.

IJ: Should insurers be permitted to pay contingent commissions or other incentive-based pay to their agents?
McPeak: I don’t know that I’m opposed philosophically to the idea of the contingent commission, that it is something that should be banned outright. I think if it was appropriately disclosed and appropriately administered, I don’t know that it’s something that would violate our existing statutes.

IJ: What about the idea that the smaller Main Street agents might be getting caught in the middle of this debate? These violations were really committed by large brokerages. How do you feel about that?
McPeak: I think that is a completely appropriate statement. In Kentucky that is mostly what we have are Main Street agents. They are not the ones that benefited from those deals or committed those acts, yet they have some pretty new restrictions coming down on them, potentially, about what they need to disclose. It doesn’t really speak well of the industry as a whole, which I think hurts our Main Street agents in Kentucky.

IJ: What catastrophe coverages and issues might impact your state?
McPeak: Certainly we don’t have the risk of hurricanes in Kentucky like most of my fellow regulators in the southeastern zone. But we do share with them the risk of catastrophes in Kentucky. We somehow have issues with tornadoes on a frequent basis. We’re also on the New Madrid Fault Line, so earthquake coverage is very, very important to us. Should there be an earthquake along the New Madrid Fault, it would be catastrophic for Kentucky as well as many other states.

IJ: Is there a problem of availability or affordability for earthquake coverage at this time in Kentucky?
McPeak: We have had a position for a long time at the office that if you’re writing habitational risk in Kentucky, you need to at least offer earthquake coverage. We have tried to be reasonable about that with some of the recent catastrophic exposures for some of the companies and say that whatever the cost of your reinsurance is, you can pass that on to the consumer. But it has to be available. It has to be at least offered to the customer. We all can recognize that there might be a potential cost to that, but it at least needs to be offered to the customers in the Commonwealth because not having that coverage available is not an option for us.

IJ: A number of states in the southeast have interest in a national catastrophe plan. Do you think that is a good idea?
McPeak: I do think it’s a good idea and that’s not just out of support for my friends in the southeastern zone. I think that at any time any of us could be suffering from a catastrophic event that could really affect the insurance industry in your own state. I think that the benefit of a national catastrophe fund is that it adds certainty to the insurance companies. They know the amount of the risk that they might be dealing with any large occurrence. It might make coverage more available to people in our state.

IJ: There are a good 10 or 12 insurance commissioners who are elected. You are appointed. Do you have a preference?
McPeak: It’s interesting. I have served many appointed commissioners as general counsel with my history with the office. [B]eing appointed myself, right off the top of my head, I would say that I would not be interested in running for a statewide office. Appointment is certainly the best mechanism for me to serve in this capacity. … I think appointment serves very well, too, at least it has in Kentucky, because the governor does appoint the insurance commissioner, executive director, and then there’s a required confirmation by our Senate.

Was this article valuable?

Here are more articles you may enjoy.

From This Issue

Insurance Journal Magazine March 12, 2007
March 12, 2007
Insurance Journal Magazine

2007 Agency Salary Survey; Agency Technology/Public Entities; Agribusiness/Farm & Ranch