Public Policy Analysis & Opinion

Of federal intervention and battles to come

NAIC bolsters defense of its regulatory turf with high-powered PR firm

By Kevin P. Hennosy

The National Association of Insurance Commissioners (NAIC) has retained the international public relations firm known as Edelman, which will provide PR services in support of the NAIC’s Insure U consumer-education campaign and overall public-relations outreach.

The retention of the international public relations firm comes at a time when the NAIC is taking political positions that run contrary to those of old political allies in the insurance sector. In September, the regulators’ association expressed support for legislation that will expand the role of the Department of the Treasury in the formation of insurance public policy. It appears that the NAIC is preparing for a fight.

The Edelman firm brings global reach anchored by strong ties to the world’s most powerful commercial sectors. Daniel J. Edelman founded the firm in Chicago in 1952. In 2007, the firm reported $402 million in fees and operations that marshal 2,100 employees in 46 wholly owned offices worldwide. In addition, the company reports working with another 50 affiliate firms.

The NAIC leadership seems a bit hesitant to admit that they have retained a high-powered, high-dollar, PR firm to defend its tenuous position on the political food chain. Instead, the regulators seem more comfortable stressing Edelman’s role in strengthening the Insure U program.

“The Edelman team offered us several creative ideas to expand our Insure U campaign, as well as outstanding strategic counsel in regard to our growing public affairs efforts,” said NAIC President and Kansas Insurance Commissioner Sandy Praeger. “We were impressed by the enthusiasm and insights Edelman brought to the table, as well as the firm’s national relationships and reach.”

The NAIC’s Insure U program mainly consists of a Web site, which contains numerous articles purporting to have benefit to consumers, but always making a strong pitch for the sale of insurance products, with the exception of a guide dealing with cancer insurance.

When one looks at the status of the Edelman firm relative to the NAIC’s Insure U program, it is a little like hiring the Petty family to drive the kids to the bus stop. There is little doubt that the NAIC has hired the high-powered PR firm in preparation for any insurance reform efforts that a new Congress and president might propose in 2009.

Edelman has earned a rather controversial reputation for below-the-radar but aggressive PR tactics. The firm boasts on its Web site that it pioneered the practice of “litigation PR” when it represented General William Westmoreland at the time he was suing CBS News. The firm has played a leading role in increasing “product placement” into motion picture and television entertainment programs in the past 25 years.

In addition to those activities that the firm trumpets, Edelman is associated with several other bare-knuckle PR tactics otherwise known as “stealth lobbying.” In 1998, the Los Angeles Times reported on the firm’s role in applying political pressure to state attorneys general to not join in a multi-state class action suit alleging anticompetitive behavior by Microsoft Corporation. In addition, The New York Times reported on the firm’s shadowy manipulation of blogs on behalf of Wal-Mart, which included setting up a fake blog, or flog, which was secretly controlled by the PR firm.

In an announcement made public on September 2, 2008, the NAIC celebrated the firm’s abilities. “Given such noteworthy credentials, we are confident that the Edelman team has the experience and the expertise to help take our outreach programs to the next level,” said NAIC President-elect and New Hampshire Insurance Commissioner Roger Sevigny. “They will be an integral part of our communications team.”

High price for political clout

There is no doubt that the retention of this level of professional firm should boost the effectiveness of the NAIC’s PR activities, which one would expect will be difficult to separate from its lobbying activities. What this action will mean to the independence of the NAIC as a political actor is harder to determine. Paying for this level of credentials and expertise is not cheap. The NAIC will have to pay for Edelman with funds it receives primarily from insurers, and that means if the NAIC takes positions that run counter to the insurance sector’s interests, insurers could easily turn off the money flow to the association. It would not be the first time; most recently insurers protested NAIC consumer-oriented policies by withholding the payment of annual statement filing fees in the mid-1990s.

This is not the first time that the NAIC has looked to an outside firm for public relations help, but in the past the efforts usually had an ulterior motive. As early as 1989, the former North Dakota Insurance Commissioner, Congressman Earl Pomeroy tried to throw a contract to a political campaign consulting firm to promote the NAIC, but the senior staff quashed the deal because it appeared that Pomeroy merely was going to use the firm for his own campaigns.

The association hired a former campaign operative of Senator Robert Dole to conduct “grassroots organizing” on behalf of the NAIC after that consultant played golf with then NAIC President and Arkansas Commissioner Mike Pickens. Observers were never able to discern what the association got in grassroots organizing for the $200,000 it paid to the consultant over two years.

Furthermore, former NAIC Executive Vice President Cathy Weatherford used to keep the public relations firm Fleishman-Hillard on retainer for more than $100,000 per year for reasons that were never really explained. At times it appeared that the Fleishman-Hillard contract was focused on presenting Weatherford to the NAIC membership in a favorable light. In 2004, the NAIC membership received a video presentation promoting the wonders of the association that could have been titled “Commissioner Strangelove or How I Learned to Stop Worrying and Trust Cathy Weatherford.”

There is little doubt that the NAIC will use the Edelman contract to bolster its role in shaping federal legislation. On September 12, the NAIC announced its support of legislation introduced by Representative Paul Kanjorski (D-Pa.), chair of the U.S. House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. The Insurance Information Act of 2008 (H.R. 5840) would create an Office of Insurance Information in the U.S. Department of the Treasury.

In a public statement, Kansas Insurance Commissioner and NAIC President Sandy Praeger observed, “We continue to believe that the federal government should not be in the business of regulating insurance, and we will continue to unequivocally reject any effort to use this or other legislation as a justification for further federal involvement. Our willingness to work constructively on the targeted issues addressed by this legislation should not be construed as implicit acceptance of federal intervention.”

Conditions, conditions

The NAIC stresses that its support of the legislation is contingent on the application and retention of the following clarifying amendments:

• The savings provisions have been improved to ensure that any preemptive power is explicitly limited to covered agreements, and cannot impede state regulation of an insurer’s rates, premiums, underwriting practices, coverage requirements, or the application of state antitrust laws.

• The definition of a covered agreement has been made solely prospective, and limited to those agreements that provide for recognition of insurance measures that protect U.S. consumers and are substantially equivalent to U.S. protections.

• The Federal authority entering into any covered agreement must coordinate with state insurance regulators to identify provisions in the agreement that protect U.S. consumers and are substantially equivalent to U.S. protections.

• The states and other interested parties are afforded several opportunities for notice and comment and given time to address inconsistent insurance measures. Any preemptive determinations are also subject to judicial review and the Administrative Procedures Act.

• The Treasury is required to consult with the Advisory Board, which includes state insurance regulators and a state legislator, in determining any stay of preemption.

• The Treasury must stay preemption of the state insurance measure if it is necessary for the protection of policyholders and claimants and for the safety and soundness of the market, or if the preemption will result in a gap in financial or market conduct regulation, or if the preemption necessitates establishing any federal supervisory authority.

• The legislation now includes non-severability language to ensure the integrity of the protections and improvements made to the preemptive aspects of the legislation.

In a letter to Representative Kanjorsky, the NAIC officers included a paragraph that can be read as a warning that the association’s support for the legislation is tenuous at best:

As the primary protectors of insurance consumers, we thank you for including these significant improvements and we appreciate your patience as we have worked to provide constructive feedback on the legislation. We are dedicated to modernizing insurance regulation, but our willingness to work constructively on the targeted issues addressed by this legislation should not be construed as implicit acceptance of Federal intervention. To be clear, we view the preemptive aspects of this legislation, however narrow, with extreme caution and skepticism. We continue to believe that the Federal government should not be in the business of regulating insurance, and we will continue to unequivocally reject any effort to use this or other legislation as a justification for further Federal involvement.

The public statement that the NAIC distributed to the news media established a much more positive tone. “A number of important changes to the legislation have been made at our request, and we appreciate the efforts made by Representative Kanjorski and the co-sponsors of the bill throughout the legislative process,” said NAIC President and Kansas Insurance Commissioner Sandy Praeger. “Now that significant improvements and safeguards have been put in place—and with the caveat that they remain in place—we can support the bill moving forward.”

The PIA’s view

The bill has faced significant opposition from segments of the insurance sector. The National Association of Professional Insurance Agents (PIA) issued an “action alert” on September 10, 2008, urging its membership and supporters to contact members of Congress in order to oppose the bill. According to the PIA statement:

[Sponsors of the legislation] have taken a bill to create a federal insurance information office in Treasury, and turned it into a federal power grab. H.R. 5840, the Insurance Information Act of 2008, has been expanded to:

• Grant new powers to the U.S. Treasury Secretary, making the Secretary the principal federal authority for domestic and international insurance issues of “national interest” with the power to determine which state laws, regulations and industry practices will be preempted.

• Effectively gut the McCarran-Ferguson Act of 1945 and the Gramm-Leach-Bliley Act of 1999, which establish and affirm that the states are the regulators of the business of insurance.

The PIA has adopted the position that “H.R. 5840 is the first step in the campaign to create a system of federal insurance regulation. We believe that H.R. 5840 will also be used to advance dual regulation under an Optional Federal Charter.”

Furthermore the PIA warns: “Supporters of H.R. 5840 are now attempting to convince members of Congress that these powers are not new, and will only be exercised under very limited circumstances, and only as a last resort. But, the language of the bill is not that narrow. And federal law is created only by what is expressed in a bill—not what its supporters say to the press!

“H.R. 5840 grants one, unelected political appointee in Washington, D.C.—the Treasury Secretary—the power to preempt any state insurance law, regulation or practice. This can happen without any action by Congress, the states or courts,” according to the action alert distributed to PIA members.

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). He has written extensively on insurance regulation and testified before the NAIC as a consumer advocate. He is an adjunct professor of political science at Avila University.