Public Policy Analysis & Opinion
Reality is overrated
NAIC continues providing disinformation
By Kevin P. Hennosy
The National Association of Insurance Commissioners (NAIC) will convene near Orlando, Florida, March 28-April 1. The meeting will launch the administration of a new leadership team. NAIC Executive Vice President Catherine (Cathy) J. Weatherford has assembled the group of commissioners to serve as her officers in 2008:
• President: Kansas Insurance Commissioner Sandy Praeger
• President-Elect: New Hampshire Insurance Commissioner Roger Sevigny
• Vice President: West Virginia Insurance Commissioner Jane Cline
• Secretary-Treasurer: Iowa Insurance Commissioner Susan Voss
At least that is the word coming out of the NAIC headquarters in Kansas City; however, it is getting more and more difficult to know what to believe when information comes from the NAIC.
Insurance is a business based on trust. Government draws its authority from the public trust, and nonprofit organizations hold a public trust. Neither of these observations should be considered startling or radical, unless one tries to apply them to the NAIC.
Trust in the NAIC is lacking and continues to falter. The association has earned a reputation for nuance, spin, misdirection and nothing short of “blue smoke and mirrors.”
On January 7, 2008, the NAIC issued a news release that provided an example of the association’s problems. The statement carried the headline: INVESTIGATION CONFIRMS INTEGRITY OF NAIC MODEL LAW PROCESS.
The NAIC has developed public policy recommendations for nearly 140 years. It should come as a surprise that the association press office felt it necessary to issue a statement that confirms the integrity of this basic role of the NAIC.
The fact that there needed to be “an investigation” should raise some red flags. It is as if the Federal Reserve issued a statement confirming that it was still in control of printing American currency.
The statement carried the subhead: Independent Review Focused Specifically on Adoption of Viatical Settlements Model Act. According to the statement, “The model act addresses many issues in the secondary market for life insurance, including a five-year limitation on certain sales of life insurance policies; enhanced disclosure requirements for viatical settlements brokers and providers; new bonding requirements to demonstrate evidence of financial responsibility; new continuing education requirements for viatical settlements brokers; and a longer time frame for rescinding a viatical settlement contract.”
“Internal” and “independent”—oxymorons?
Generally, when an organization submits itself to an “independent” review, the old cliché comes to mind: “Where there is smoke there is fire.”
That smoke took on a blue hue when the state-ment then described the investigation as “internal.” The NAIC said “it has completed an internal investigation of the approval process related to the Viatical Settlements Model Act, concluding that the model was accorded open debate and unbiased consideration and that the adoption of the model act by the NAIC’s Life Insurance and Annuities (A) Committee was unbiased and not subject to undue or improper influence.”
In addition to the change in description of the investigation as an internal function rather than an independent function, another phrase caught my eye: undue or improper influence. Thinking back on my years as a public relations operative for the NAIC, I remember we had some problem characters to explain to the public. We had a Louisiana Insurance Commissioner who was ultimately sentenced to consecutive terms in state and federal prison each of which was measured in terms of decades. We had a Wyoming Insurance Commissioner who went to jail for corruption, and whose trial contained lurid stories of cash given to exotic dancers in Dallas. I also knew an Arkansas Commissioner who resigned after he admitted that he had not filed federal income tax returns for several years. Through all of those “colorful times,” I never had to sit down and draft a statement that associated the phrase “undue or improper influence” with the NAIC.
Now it is possible that the term “internal” was a misstatement that was simply overlooked in the process of editing the statement. Yet, when one looks at a quotation attributed to Kansas Insurance Commissioner and NAIC President Sandy Praeger, the internal nature of the investigation seems restated. The commissioner took ownership of the investigation by saying, “We conducted this investigation so that we could validate the process by which this model was adopted.”
“We conducted this investigation” can hardly be described as an independent function. In addition, it is probably telling that the purpose of the investigation was to “validate the process” followed by the NAIC.
Nevertheless, the statement then shifts gears once again:
“An independent investigation was performed by Lynn McCreary, a partner at Bryan Cave LLP, a leading national business and litigation firm. McCreary conducted a detailed examination of the A Committee’s meeting minutes and other relevant documents, as well as personal interviews with each individual who served on the A Committee at the time they adopted the model act.”
Of course, it is difficult to apply the term “independent” to any investigation where the investigator is hired by and paid by the subject of the investigation. Furthermore, this is not the first time that the same law firm has been retained by the NAIC Executive Vice President to “investigate” association functions. If the NAIC really intended to subject itself to a credible independent review, then the entire process should have been under the control of and paid for by an independent third party.
“We want to ensure that the confidence placed in the integrity of our members’ regulatory activities and the NAIC model law process remains intact,” observed Weatherford. “We will continue to do everything possible to uphold our duty to the nation’s insurance consumers by conducting our work in a deliberative manner, taking into consideration the viewpoints of all interested and impacted parties.”
If Weatherford is really committed to ensuring “the confidence placed in the integrity of our members’ regulatory activities and the NAIC model law process remains intact,” she must work hard to undo the policies she put in place a dozen years ago.
Credibility is overrated
For many years, the NAIC garnered a significant amount of trust through its framework for developing public policy recommendations. The NAIC’s model laws, regulations and guidelines shaped insurance regulation in the United States. Those work products were always most credible when they reflected a melding of regulatory approaches followed by individual state insurance departments.
In the late 1990s, the NAIC was facing great criticism from insurance trade groups for reforms to regulation adopted in the early 1990s. In order to buy peace from the trade groups, Weatherford turned more and more control over the NAIC’s operations and work products to the lobbying arms of the regulated industry. These agreements even found their way into The Wall Street Journal, which reported on a shadowy dinner meeting between NAIC leaders and industry representatives at a Nick’s Fish House restaurant in the Chicago area.
As a result of Weatherford’s concessions at Nick’s Fish House, trade group and insurance carrier lobbyists played a more controlling role in the creation of NAIC policy recommendations. To the extent that there was unity across industry sectors, this arrangement worked out just fine for insurers. In the first years of the 21st century, the NAIC became a clearinghouse for deregulation proposals that quieted the association’s critics for several years. As long as there was a consensus position across the broad cross-section of factions that make up the insurance sector, the framework produced recommendations in an efficient manner.
What appears to be happening now is that Weatherford has held her office with the NAIC long enough that she believes that she can breach the Nick’s Fish House deal. From this observer’s perspective, Weatherford paid for peace with her independence over a decade ago. There are no returns on sale items.
Culture of deception
But like so many slaves, Weatherford yearns for freedom. In a defiant attempt to operate in a free and independent manner, she appears to be employing an alternate view of reality.
Take, for example, the annual debate over the NAIC’s budget. Weatherford invites insurance sector participation in the Budget Process. Yet, if you talk to those industry advocates who participate, they will report that the process is a sham. Each year the budget proposes spending levels and reports on the previous year’s approved spending levels. The association’s actual financial condition is the subject of speculation. The NAIC, a nonprofit corporation, which holds a tax exemption letter under section 501(c)(3) of the Internal Revenue Code, refuses to file a Form 990 Financial Disclosure Form.
The culture of deception extends to the most ridiculously minute areas of the NAIC’s operations. For example, look at the way they market their conventions: The NAIC will convene its first quarterly meeting of the year in the general vicinity of Orlando, Florida, March 29-31. If anyone tried to sell insurance like the NAIC is selling its meetings locations, they could expect a few questions concerning the state Unfair Trade Practices Act.
The actual location of the NAIC meeting is something of a term of art. If one looks at the association’s Web site, there is a promotional ad for the upcoming meeting. The ad prominently features the name “Orlando.” In addition, through the wonders of the World Wide Web, the ad features lovely and enticing pictures of Orlando parks and amenities.
Yet, if you make use of the wonders of the Internet and do not just rely on the NAIC provided links, you learn that the meeting site is outside of Orlando in Kissimmee, Florida. If you want to go to the amenities featured in the NAIC advertisement, then prepare to spend some real money on cabs or rental cars.
Now, why would NAIC mislead meeting attendees over the location of a hotel and conference complex? Why not just tell meeting attendees that the hotel is in a suburb so they should rent a car or budget for a number of hefty cab fares? Well, that would be the honest thing to do, but it would not be the popular thing to do. The NAIC has convened its conventions in another Gaylord Hotel property and attendees complained about the atmosphere.
Like the Hotel California …
Those who travel on business to NAIC meetings, and those who process their expenses, tend to cringe when they hear the name Gaylord Hotel. They remember two previous NAIC meetings at the Gaylord property at Opryland, near Nashville, Tennessee, proper. Yet when the NAIC met at Gaylord Hotel at Opryland, very few attendees saw Nashville, and those who did paid for it. Two-way taxicab fairs to Nashville’s fine dining, or even just “fun” restaurants edged toward a C-Note. If one rented a car as a means of escape, then there was a hefty in-and-out fee paid at the entrance to the Opryland parking area.
Even for those who count themselves among the throngs of Country Music fans, the Opryland Hotel leaves the business guest with a distinct feeling of being trapped. Not only is the hotel sprawled out over an expanse of cheap land that hugs a major freeway, but the walkways to the meeting rooms remind one of a warren for hamsters.
In this former Opryland guest’s opinion, the Gaylord properties are designed to trap guests once they arrive. The 2006 Annual Report of Gaylord Entertainment tends to support this opinion: “Finally, we surround our award-winning resorts with additional leisure attractions to enhance the appeal of our destinations and to keep attendees and their families entertained for days on end.” I do think it is safe to assume that state fire marshal rules forbid the locking of doors or use of physical restraints to assure attendee spending on the hotel’s grounds.
In addition to the Kissimmee meeting, the NAIC will convene meetings in San Francisco in June; but then it will meet outside of Washington, D.C., in September and near Dallas in Grapevine, Texas, in December. These meetings were awarded as part of a multi-meeting deal.
The site selections for 2008 are particularly interesting. Three of the convention locations belong to the Gaylord Entertainment chain, which used to belong to the Gaylord Publishing Company of Oklahoma City, founded by E.K. Gaylord. It may be assumed that Catherine J. Weatherford—the former Oklahoma Insurance Commissioner and NAIC Executive Vice President—is quite familiar with the movers and shakers of Oklahoma City, like the Gaylord Family. E.K.’s offspring still publish The Oklahoman newspaper. His son went on to form the Nashville Network and Country Music Television, and he currently serves on the board of the Gaylord Entertainment chain. Perhaps it should not come as a surprise that Gaylord seems to be Weatherford’s new favorite in hotel brands.
If you plan to attend the NAIC conventions this year but do not want to spend “days on end” locked in a space that resembles something designed by NASA or a mad scientist, you had better be willing to pay the price.
And while you are at the NAIC meeting, feeling distinctly like a hamster, please remember that the “independent and internal” review contracted for by the NAIC has decided that you are not wasting your time and money.
The author
Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide Insurance Cos. and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate. He is currently writing a history of insurance and its regulation in the United States and is an adjunct professor of political science at Avila University.