WARNING: This is a long one. Buckle in.
Insurance Journal recently published an article detailing what action the Florida legislature is planning to take this year related to insurance. One item in particular caught my attention (so far); Senate Joint Resolution 1460: Commissioner of Insurance.
You can read the resolution here, if you want.
For now, I will set aside my desire to tell you how I feel about this issue. First, I feel like it’s time to discuss the insurance regulatory system in the US and discuss this matter of how insurance commissioners get their jobs.
If you’re into history, you may already know that Benjamin Franklin is credited with helping to found the insurance industry in the US. His Philadelphia Contributorship for the Insurance of Houses from Loss by Fire is recognized as the first real fire insurer in the US (American Colonies as they were known in 1752). In starting this company, he also created the pattern for what would be called mutual insurers, but that’s another story.
Since each individual colony was governed individually (under a Federal government in Great Britain), there was no Colonial Insurance Office, or Continental Insurance Regulator General. Each colony dealt with insurance on its own. Hopefully, you know the significance of July 4, 1776 and the struggle that rose over the next seven years.
While the newly created states were working together and separately to create their own governments and governing documents, the insurance industry was already used to dealing with each state. Each state would regulate insurance in its own way through state legislatures until 1851, when New Hampshire became the first state to appoint an insurance commissioner.
States followed that lead and now each state has an insurance commissioner. Since property insurance started out as fire insurance, some states still call their insurance commissioner the state fire marshal as well. According to the National Association of Insurance Commissioners (NAIC), only 12 states elect their insurance commissioners. The rest are appointed, often by the Governor.
The fact that the majority of states appoint their insurance commissioners does not necessarily make that the best option. It is simply the most popular option right now. So what’s the difference and what do the differences mean?
Elected insurance commissioners
In those states that elect their insurance commissioners, it’s just like any other elected office. That means that every few years, they must seek reelection, unless that state has a term limit in place. Let’s be fair to the process. We love elections. We thrive on them. In a perfect electoral world, an elected state insurance commissioner makes total sense.
The insurance commissioner would not be beholden to the governor as a political appointee, but to the people as their elected official. It would seem that an elected insurance commissioner should be someone who understands the insurance industry, is interested in ensuring that all insurance players (companies, agents, adjusters, and customers) play nicely, and who can help make and keep the state’s insurance market as healthy as possible. In the end, if a commissioner doesn’t do their job well, the people will get a chance to remove them and replace them with another one.
Power to the people! Call me cynical, but it doesn’t seem to always work that way. Many politicians look at a job like an insurance commissioner as a steppingstone to another job. They may not even be required to know anything about insurance. They just want the job so that they can be seen forwarding an agenda so that they can become anointed by their political party to the next job that comes up, such as governor, state legislator, or some other job.
The political process allows for people to be elected to offices not based on what they can do in that office but based on who they can get on their side. It’s not always about who is the best candidate, but who can spend the money smarter and get more votes than the other person.
Appointed insurance commissioners
When the insurance commissioner is appointed, the governor is often the person doing the appointing. Once appointed, the insurance commissioner may need to go through some process to keep the job when a new governor is elected. This allows the governor to appoint who they want, but there are limitations. For example, in Florida, the appointed insurance commissioner can be relieved of duties by the governor, but only with the agreement of the chief financial officer.
In these states, the insurance commissioner isn’t beholden to the people of the state, but to the governor. You could consider these officials as above the political process, able to act independently. They don’t have to take time out of doing their job to get reelected every few years. As long as they do their job well, they normally end up staying in the job.
Of course, that means that if a governor is elected that has a different vision for the insurance department, the insurance commissioner may have a difficult time keeping their job. If you have a very consumer-oriented commissioner and the governor wants someone who is more pro-insurance company oriented, it may become difficult for the commissioner to accomplish their job.
So, what do I think is better?
I’m pro-freedom so I like having the ability to vote for as many people in the government as possible. I like to think of myself as a fair minded person who can examine how candidates stand on the issues that are important to their job (no, I don’t care what the insurance commissioner’s take is on job creation, that’s not her job) and make a decision based on what I know of the candidates.
That doesn’t mean that I support electing an insurance commissioner. Actually, I’m against it. The electoral process, while being the best system of placing people into the executive and legislative offices, is insufficient for placing people in specialized offices, such as the insurance commissioner.
There is no guarantee that a governor will appoint a great insurance commissioner. In fact, that can be as much a gamble as the electoral process. It’s not even that I have the utmost confidence that a governor will always act in the people’s best interest in appointing a candidate to the office of insurance commissioner. However, I am confident that a governor is likely to act in their own best interest so they are likely to bring forward a candidate for the job that can be approved through the state’s approval process and that is likely to do a passable job in the position. If for no other reason, it helps their next candidacy.
What about power to the people? Prepare to be offended. I fear that there are too many people who don’t know enough about insurance. They look at their insurance companies as an adversary who takes their money and doesn’t give them anything in return. They listen when the billboard attorneys tell them that the insurance companies should be made to pay. It’s not that they can’t know. It really is about how much noise is out there, telling people that insurance companies are evil and must be made to pay. Couple that with the billboard attorney’s deep pockets that could help get the candidate that they want into office and you have a situation where the possibility increases that an unbalanced commissioner gets elected. This may feel good to some, but it isn’t.
In the end a state insurance commissioner must be open to looking at the truth of the state insurance market and make tough choices. An insurance commissioner must be able to understand the insurance market in a state to best serve the people of the state. That means that she must be able to balance affordability with solvency. Insurance does no one any good when they can’t afford it nor is it helpful when insurance companies cannot get the premiums that they need to stay in business.
The insurance commissioner must balance the coverage needs of the people with the company’s need to exclude certain losses. Yes. I would like every claim to be paid, but I’ve been in insurance long enough to know that there are some losses that simply cannot be covered, at least not the way things are today.
The insurance commissioner must balance trusting the players to play by the rules and checking on everyone to make sure that we’re playing by the rules. Contrary to what some would like us to believe, not every insurance company is looking to get out of paying legitimate claims. But there are insurance companies who need to be dealt with (harshly) for violating that one promise that they make to the consumer. We would also be led to believe by some that every insurance consumer is only looking to get the money that they are entitled to. No one would ever try and file a fraudulent claim, pad a claim, or otherwise try and act dishonestly toward their insurance company. But there are consumers who try and steal from their insurance company and they deserve to be dealt with (harshly).
The way I see it, the best way to get someone who might be able to walk that line between the consumers and the companies is to have the insurance commissioner an appointed position.
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