The Commissioners: Tim Wagner

March 12, 2007

Neb. Director sees industry as leading voice on global warming issue

Director of Insurance L. Tim Wagner has spent close to 40 years in the insurance industry, the last nine as the appointed Nebraska regulator. He takes his role seriously and believes the insurance industry has a real impact on the economy and therefore has a real political voice and a responsibility to use it. As chair of the National Association of Insurance Commissioner’s (NAIC) Climate and Global Warming Task Force, Wagner believes that the industry should be a leader in taking action to alert the public about climate warming and the dangers of carbon dioxide.

Another top concern in Nebraska is the dispute between body shop owners and insurers. Wagner describes the debate as contentious and says as a regulator he feels an obligation to help resolve it so that consumers don’t feel the brunt of higher premiums because of the tug and pull between the industry and body shops over discounts and referrals.

The Commissioners 2007, Part 1 is a series in which Insurance Journal speaks with 15 state insurance regulators. Wagner’s video interview can be viewed in its entirety at www.insurancejournal.com/broadcasts.

Let’s begin by talking about a potentially political and controversial issue in your state — the insurance industry versus auto body repair shops? Can you talk about the debate on this issue and what role you might play in that debate?
Wagner: There is a growing concern on the part of auto repair shops that the insurance department is not doing what they view as it’s responsibility in governing the adjustment process between insurers, who are payers, and the body shops, who are providers. This issue is gaining some contentiousness, and we’ve been interjected into a process where we do have a framework for these settlements, but that framework apparently is not the same framework that the auto body shop repair people would like. It’s one of those issues that as a regulator, it’s very difficult to interject yourself between business to business transactions. You can’t be omnipotent, and you can’t be omnipresent, and clearly there is a process that takes place in the interplay that is very, very difficult to regulate.

The insurance department gets relatively few, if any, complaints about the quality of auto body repairs. Some of these repairs are done by body shops that have signed service agreements with insurers, requiring the body shop to have a certain level of education, to have certain equipment on staff, and meet certain quality standards. Is that anti competitive? I don’t know that it is, but clearly the body shops have a different view of those agreements.

Some insurers have arranged to receive discounts from body shops and that makes the next insurer want to have the same discount. The body shop is reluctant or feels threatened by that process or that demand. So there is controversy. We may decide in the next session, to have a study group in the legislature to look at that relationship between the insurance companies and the auto body shops.

Is this an issue that you see happening in other states?
Wagner: I believe that it is an issue in other states. I talked to some fellow commissioners when this came up in Nebraska and generally they agree that the issue ends up with a lot of visibility.

My focus is for legislators to understand that every dollar that is paid out in a claim runs through the system and is a dollar that is paid by consumers in premium payments. We’re proud of the fact that Nebraska is one of the lowest five states when it comes to automobile rates. I do feel a certain obligation to maintain or even better that position. I tend to want the insurer, who actually is a purchasing agent, if you will, for the insured, to be fair with the repair shops, but by the same token, I don’t want insurers to pay more than what is reasonable to repair an automobile, because that translates into higher premiums for consumers.

Let’s move on to another issue. Here at the NAIC winter meeting you serve as chair of the Climate Change and Global Warming Task Force. What you are hoping to accomplish through this group?
Wagner: We have no defined list of things that we want to accomplish, but here are a couple things that I believe are worthy of note. First and foremost is some consensus on the part of the insurance industry that climate warming is taking place and that it is anthropogenic; in other words, it’s made by man through carbon emissions.

I really feel strongly that the generations to come are going to be affected by our actions today. Mobilizing the insurance industry with this issue and recognition of its social responsibility is clearly important. The insurance industry is almost like the poster child for climate change or global warming. The industry has felt the impact of four major events beginning in 2004 with $27 billion in losses and then in 2005 we had a $57 billion dollar loss because of hurricanes in our coastal regions. It ought to be a wake up call that we need strong federal, national policy on carbon incineration.

Recognition of that fact that climate change is real is a big step because with that recognition comes a couple of things that can happen. First, the insurance industry can become more visible in attempting, through the political process, to get a stronger land use policy. Over the last 50 years, we have drained swamps and we have cleared land in areas that are catastrophe prone. We have created a great asset base in areas that, up until that time, were not built on because they were catastrophe prone.

I believe that the insurance industry has to demand stronger as well as uniform building codes throughout catastrophe prone regions. But perhaps the most important thing I would like to see out of the committee is the insurance industry as a leader on this issue overall. Historically the industry has been a mover if you will in social causes. It is the industry’s responsibility to help people. It is their call to protect people and spread risk. The industry has taken an active role in safety. I would like us to take an active role in bringing the concerns about global climate changes and our dependence on a lifeline to carbon to the public’s attention.

Can the industry do more to encourage the development of that policy?
Wagner: If I had a fraction of the money spent on promotion of the optional federal charter in Washington, that sum would have been a big contribution to promoting the awareness of global climate changes. The insurance industry represents 10 percent of our economy. It is a powerful industry and it has a voice in Washington. The industry can have a significant impact on this important issue.

What do you think about the U.S. industry’s action on this issue compared to our global counterparts in Europe and Canada?
Wagner: Well what we heard in the NAIC Hearing is that the U.S. does not compare favorably. I do not really understand why the U.S. industry is so behind on this issue. I just don’t have an answer.

What is your position on establishing a national catastrophe fund?
Wagner: At first blush, you would think I would say, no. Why? Nebraska will never have a catastrophe like Hurricane Katrina. If our state has a catastrophe it would be a drought and that is not an insurable risk. Why would we want to subsidize a national catastrophe program?

However, I do believe that it a catastrophe fund should be enacted. It has nothing to do with one state subsidizing the other state. My belief is that we need a catastrophe fund because of the need to have stability of the marketplace. The economy without insurance will come to a halt. Without the availability of insurance there would be no more new building, and very little transfer of property. If we have an insurance failure of great magnitude, it would be a national problem. That is why I believe that some kind of backstop at a very high level is necessary.

Recently multi-state pacts were signed with Zurich and other insurers. In these pacts, contingency commissions as a form of agent compensation is banned. Where is Nebraska on this issue?
Wagner: What we have in Nebraska is a bright line. So some of the concerns that brought this matter to the attention of regulators didn’t exist in my state, or if they did, they were on their face illegal transactions. A company representative agent can accept compensation from a client. If they accept compensation from a client, they cannot accept compensation from an insurer. Conversely an insurer, an agent, cannot charge a fee to a client and receive compensation from the agent. So we have a bright line. There is some interest on the part of agencies to blur that somewhat by specific compensation for unusual situations under the supervision of the insurance department.

I’ll give you an example.

Oftentimes in the commercial auto area, you have to issue hundreds of certificates. The compensation that the agency is receiving from the carrier is not sufficient to cover those expenses. So that would be an area where a specific fee for a specific service might be contemplated, and there’s some interest in creating a statute in that regard.

Regarding the major issue where an agent is receiving a commission (which is expected, I mean, my god, people don’t work for nothing!), and that commission is tied to some kind of a compensation plan based on the agent’s volume or the agent’s experience with the company — I have no issue with that. And, I don’t know that the commission really needs to be disclosed to the consumer.

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