Under Pressure from AG Blumenthal and Critics, Regulator Sticks to Consensus Approach
I’m willing to meet with just about anyone to sit down and discuss issues. That’s the most effective and efficient way to uncover and deal with problems.”
Well, meet with almost anyone. Connecticut Insurance Commissioner Susan Cogswell prides herself on an open-door policy in regulating the industry but one person unlikely to come through her door anytime soon is Richard Blumenthal, the state’s attorney general.
Democrat Blumenthal has been a thorn in Cogswell’s side for months, calling for more aggressive department action on brokerage compensation and medical malpractice rates in particular. Most recently, he went so far as to propose that Cogswell, and all future commissioners, face voters in an election rather than be appointed by the governor, as is now the case.
Cogswell has tended to turn the other cheek while standing her ground on these issues, but that doesn’t mean the criticisms do not hurt. “Sure they bother me,” she admitted when she welcomed Insurance Journal recently, “especially since we have an open door philosophy here.”
She’s also bothered because she believes that the people on her staff are dedicated, capable and efficient and do their jobs well, despite what critics say.
Like several of her state colleagues around the country, Cogswell appears most comfortable working in the background than out in front generating headlines the way attorneys general seem to do.
Her handling of the debate over brokerage compensation disclosure sparked by New York Attorney General Eliot Spitzer illustrates Cogswell’s style.
She prefers to act after all information has been reviewed and a consensus has been reached. She has been working to collect data and reach agreement among states as a member of the task force set up by the National Association of Insurance Commissioners to delve into brokerage compensation. That task force has produced a model compensation disclosure law, which she and Gov. M. Jodi Rell have endorsed and already filed as legislation.
Rell’s NAIC-inspired proposal requires an insurance agent or broker receiving compensation from an insurer or other third party to first obtain the customer’s written consent for the compensation. The agent or broker also must disclose the amount of compensation from the insurer or other third party for an insurance policy. If the amount is not known at the time of disclosure, the agent or broker must give an estimate.
Dennis Schain, a spokesman for Rell, said the governor’s proposal “addresses many of the issues and areas of concern, but we’re certainly open to hearing more from the legislature.”
The legislature hasn’t spoken yet but Blumenthal has. He criticized Rell’s proposal as a “shadow of what should be adopted. It’s riddled with exceptions that essentially swallow the rules.”
Blumenthal’s own tougher proposal requires that agents disclose in writing whether they are acting on behalf of insurers. Brokers and agents also would be required to disclose details of quotes from insurers and reasons for a recommendation.
The NAIC task force addressed some issues in its proposal but has delayed recommendations on more controversial elements including imposition of fiduciary responsibility, restrictions on producer-owned reinsurers, and mandatory disclosure of all price quotes on an account.
Cogswell is happy to wait for the next show of consensus within the community of state commissioners before going any further. “My mind is open on these subjects. I think we need to flesh them out and have further discussions,” she said.
The model disclosure act is just one piece of the NAIC response that Cogswell has embraced. She has sent out more than 300 letters based on an NAIC template seeking information on broker compensation practices. The letters have gone to domestic companies and larger producers. Data is still coming in and being reviewed. “We are looking for things we might have to investigate further,” she explained.
She also supports the NAIC’s new online fraud reporting line. “There haven’t been a whole lot of people coming forward complaining so we thought it would be best to have a vehicle where people could come forward anonymously to report any wrongdoing,” she said.
She hesitates to propose additional rules on the industry until she has more information. “It’s really appropriate obviously that bid rigging should be properly punished,” she stated. “But my colleagues and I at the NAIC are continuing to look to see how widespread a problem it is. We want to develop an appropriate model so that people who buy insurance who want to be informed are informed but without putting an undue burden on the commerce of insurance.”
Blumenthal, however, says he already has sufficient evidence of wrongdoing, enough to file suit in one case anyway. The AG has sued insurance broker Marsh & McLennan Inc. and insurance provider ACE Financial Solutions Inc. for a scheme in which ACE allegedly paid Marsh a secret $50,000 commission to steer an $80 million state contract to the company.
Cogswell said she hasn’t yet seen Blumenthal’s evidence. “We are not involved with the lawsuits,” she made clear.
Medical malpractice insurance rates also pose a challenge for Cogswell. Last legislative session, Rell’s predecessor, Gov. John Rowland, vetoed a malpractice reform package because it did not contain caps on damage awards. Rell has now proposed her own package of reforms that avoids the politics of caps.
While the politics have been playing out in the state house, malpractice insurers are filing for rate increases. Last April, Cogswell’s actuaries let through an 89.6 percent filing by GE Medical Protective Company (MedPro), a decision that touched off protests. The state’s trial lawyers, joined by consumer groups, asked Cogswell to halt the increase and review what they maintain is an “excessive” and “unconscionable” increase. Blumenthal also got involved, calling for Cogswell to hold a public hearing into the rate hike.
In response, Cogswell agreed to hire an independent actuary to take a second look at the 89.6 percent rate filing. According to the department, that outside analysis confirmed its own earlier assessment that the rates were not excessive.
In January, Rell asked the Commissioners of the Departments of Public Health and Insurance and the Office of Health Care Access to put together a hearing on issues from rates to access to health care. But the hearing, held on Feb. 25, was not designed to review the MedPro filing.
Appearing at that hearing, Blumenthal again blasted state insurance officials and urged Cogswell to call a public hearing into the 89.6 percent hike. The attorney general, noting that state lawmakers were looking into reforms again, warned that those efforts could be wasted. “Reform will be ineffective unless the state also scrutinizes specific rate requests and demands evidence to establish that they are fair and equitable, and stop them if they are not,” he maintained.
Thus far, Cogswell has not given in to the calls to block the MedPro rates. Since it’s almost time for the next round of insurer rate filings, the controversy could be rekindled.
While its luster may have dimmed in recent years due to industry consolidation, the insurance industry remains a bright economic light in the Hartford and Stamford areas. Cogswell sees part of her job as helping to protect and grow this base. Referring to last year’s acquisition of home-based Travelers by Minnesota-based St. Paul, Cogswell noted that the department does what it can to uphold job and community commitments in the local area. “Part of my responsibility is the public interest,” she said. “That obviously includes jobs. So whenever we have a change of control transaction we look closely at the impact on the community.”
Cogswell has even gone on calls to executives to convince them of the advantages of doing business in the Nutmeg State. Her role, she said, is limited to letting them know her department can be a “good regulator, that we will regulate properly and in a timely manner. That’s not to say we’re going to go easy on them.”
And her door will always be open to them. Unless, perhaps, their name is Blumenthal.
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