A Tough Supporter of State Insurance Regulation, Hudson Also Has Open Door Policy at the Department

A public servant, attorney and community leader, Mary Jo Hudson officially took office as the 46th director of the Ohio Department of Insurance on Jan. 8, 2007. She was appointed by Governor Ted Strickland to join his cabinet on Dec. 21, 2006.

When Insurance Journal‘s Associate Editor Ken St. Onge interviewed Director Hudson at the National Association of Insurance Commissioners meeting in September, she was adamant about the future stability of state insurance regulation over any federal oversight and said that AIG and its problem supported her position. The Ohio director is also not a believer in a national catastrophe plan because she is concerned that the Ohioans will end up paying for damages in other coastal areas. She resurrected the Agent Advisory Council and believes strongly in an open door policy that benefits both the regulator, as well as consumers and agents. To view the interview select the video link below.

Insurance Journal: Director Hudson, you’re nearing your two-year anniversary in your role as a commissioner. Tell us about the property/casualty landscape in Ohio.
Hudson: Ohio has a very competitive insurance market with a very solid group of domestic companies. In addition, we have a lot of other foreign companies. It’s a very competitive market. Our rates for auto and homeowner’s insurance are some of the lowest in the country. So we’re very proud that the market is sound, stable and, of course, affordable.

Tell us about disaster preparedness in Ohio.
Hudson: Ohio has had an opportunity to test our disaster preparedness. This month (Sept. 14-15), we had hurricane-force winds as Hurricane Ike passed over Ohio. It hit a cold front and in a freak of nature, dropped those winds down on us. So 84 of our 88 counties experienced insurance losses, mostly downed trees and damage associated with that.

Most of the state of Ohio lost power for a good part of the week. We certainly didn’t experience what they experienced down south and we feel very fortunate. However, this was a storm that Ohio wasn’t really ready for in terms of warnings. I believe six people were killed. Most of those folks were killed because they were outside in the storm.

So we need to do a better job in the future in the area of alerts and warnings.

Where do you stand on national catastrophe plans?
Hudson: I’m a very strong supporter of statebased insurance and insurance regulation. As far as a national catastrophe plan, my concern with a number of those plans, it’s a pool or it’s a way to either rate folks on a national basis or have a pool that has national funds.

Ohioans live in, even considering our recent storm, a lower risk state and we pay rates accordingly. There are a lot of other Midwestern states that have similar weather. We don’t feel that our taxpayers should have to share the burden with folks that live in much riskier areas and choose to live there. There are some intriguing proposals out about more regional rating that we will continue to watch.

What about Ohio’s fraud detection and fraud prevention programs?
Hudson: We have several. The mortgage crisis has hit Ohioans hard. We’ve had a large number of foreclosures and with that has come arson claims. We have worked with industry folks, with our fire marshal’s office to train a special squad of our fraud examiners so that they are well-versed in arson investigations.

We’ve also worked with different groups to do joint training and enforcement efforts to combat arson. The storm brought up an opportunity to also talk about a recent program we’ve initiated with the property/casualty companies on combating contractor fraud and misleading contractor activities.

We’ve worked with the companies so when they see a suspicious contractor, they report it. There’s a protocol we’ve set up so they could easily report it to us. We can investigate.

We’ve also worked with the contracting associations in Ohio to educate them on what it means to be a public insurance adjuster, what steps are appropriate to just help their customers, and what’s inappropriate and when they’ve crossed the line at being a public adjuster.

The local companies have responded well.

What is the impact in Ohio regarding the problems that AIG is experiencing?
Hudson: Ohio is one of the top 10 states where AIG wrote business in this country and continues to write. The first thing is we have been reassuring consumers that the problems at AIG are with the parent company and the noninsurance holding company.

The insurance companies, or about 40 of those companies, are licensed in Ohio. We have worked with the other states. We monitor those companies as other companies licensed in Ohio; very solid insurance companies. Their assets were not affected by the bad dealings of their parent, and likewise are not at risk by the Feds and the loan that the Feds has made to that company.

We will be watching closely and working with our sister states to make sure that those companies, if they remain part of AIG after its sell off of companies to pay off the loan and reorganization, or if their companies are sold that they are sold to stable buyers and that those policyholders are protected going forward.

Some say AIG’s problems will trickle down and affect the debate over state regulation versus Federal regulation.
Hudson: I just think this loan would never have been made to AIG had it not had solid state-based insurance companies making up the bulk of the company — that was the collateral, in effect, meaning the ownership of those companies. The stability is what gave the Feds confidence to make that loan. The Feds are expecting all of that money back, and there is absolutely no reason why they won’t get that back. It should not cost the taxpayers a dime.

With that in mind, a lot of folks who are advocating for Federal regulation, or optional Federal charter, are using this as an opportunity to say, “Oh, the insurance regulators failed.” Well, they are mixing apples and oranges. I think in insurance the thing that you don’t want is to cause a run on the company. Lack of consumer confidence can do that. We are trying to reassure consumers at this point. Don’t cash in your annuity. Don’t move your policy.

I think overall, though, we as regulators have work to do to educate our legislators and the public better about what we do and that really stability in the insurance market which is the calm and the eye of this whole storm in the financial services market is really due to the significantly superior regulation that states bring to the insurance market.

I guess you can probably tell I am a pretty solid supporter of state-based regulation. I don’t think this AIG crisis should be at the foot of Treasury and at the foot of the Federal regulators on the non-insurance issues that they were asleep at the switch when all of this happened. It shouldn’t reflect poorly on regulators.

What insurance department issues do you see looming ahead or changing in the coming months?
Hudson: Well, we have a great team at the Ohio insurance department. We have done some “fine tuning” over the last year and a half. We now have a chief regulatory officer and a chief policy officer and made sure that our career regulators all report up through the chief regulatory officer. We wanted to create stability in the long run for our regulators at the department because that’s really our bread and butter.

What is the relationship between your department and agents. I know that you were instrumental in bringing back the Advisory Council in Ohio.
Hudson: We had an Agent Advisory Council that had been dormant for some time, and so we revived that. We’ve really expanded the focus of the Council so that a couple times a year, at least, we have agents from a variety of walks throughout the state come in. We get their feedback on issues and that is very critical. We license close to 200,000 agents. A little less than half are domestic agents. I have tried to assure the agents that our door is open all the time. Many use it and come in and let us know what they think. Overall, I think we have a good relationship.