Saturday, December 18, 2004

Agenda for Insurance Reform

"As Gannett's own series shows, state legislators have to be thrown off the insurance industry gravy train."
After praising Gannett's four-part series on the Florida Insurance Storm, I wrote a mild rebuke to the effect that the media chain's "investigative report" seemed to end with a whimper, not a bang.

Yesterday, Gannett's Florida Today, based in Brevard County, followed up both the series and the recently-concluded special legislative session with somewhat sterner stuff. The editorial, 'Far From Finished', tries to connect all the dots by warning state officials that they have to do better in the coming 2005 legislative session. Here are the guts of it:
[T]he results of the regular session will prove whether the visits to hard-hit areas by Gov. Jeb Bush and lawmakers showed a new dedication to public needs -- or were just a cover for continued kowtowing to the insurance lobby.

Any state official planning to stay in that lobby's pocket better understand the public is on to them.

As a recent investigation by Florida Today and other Gannett newspapers and TV stations in Florida showed, insurers who 'cry poor' as they lobby for higher rates sing a different song when it comes to Wall Street.

With analysts and investors, they stress they can pay the claims and still pull in a nice profit.

Some major insurers even have formed Florida subsidiaries that are very useful when seeking rate boosts.

As the Gannett report said, the subsidiaries can show a bleak profit picture. But any legislator worth his paycheck knows much of, if not most of, the claims are paid through parent companies that have collected hundreds of millions of dollars in dividends and other payments.
The editorial calls for law reforms requiring that --
  • insurance policies "clearly disclose the dollar amount of deductibles"
  • toughen penalties for insurers companies that don't meet claim-handling deadlines
  • clear the confusion over so-called 'hurricane polices' that don't "cover the damage caused by storm surge"
  • reform the "disastrously run" Citizens Property Insurance Corp., and
  • "be rock-hard in demanding any rate hikes be based on costs and true market conditions, not insurance-company spin."
  • That's a reasonably impressive agenda. But there is plenty of room -- and a compelling need -- to expand it.

    For starters, the Insurance consumer advocate needs to be un-embedded from the Financial Services Department, as he himself has argued in the past. Anyone trying to voice the interests of insurance consumers should be truly independent of the agency that oversees insurance merchants.

    Tougher ethics laws should be enacted requiring divestiture of all insurance-related investments privately held by regulators. Filing the usual annual disclosure form just isn't enough. State officers and administrators flat-out shouldn't be investing in the same industry they regulate.

    Officials who leave government service should be prohibited for at least two years from representing before any state agency or department a company or industry they regulated while employed by the state. The current state constitution at Article II and ethics statute at Fla. Stat. sec. 112.313, only prohibit state officers from appearing before the same "government body or agency of which the individual was an officer or member."

    An insurance company could drive a convoy of Brinks trucks loaded with cash through that hole. (And it's likely some have!)

    For example, not to pick on any particular person, under current state law Florida CFO Tom Gallager couldn't lobby his old agency after he leaves office, but nothing in the law would appear to stop him from lobbying the legislature in exchange for a hefty salary and bonus. Or vice versa: state Senator Rudy Garcia, now chairman of a powerful legislative committee that oversees insurance matters, arguably is free to take a paid lobbist job to influence the Office of Insurance Regulation the moment he gives up his elective seat.

    Most important of all, as Gannett's own series shows, state legislators have to be thrown off the insurance industry gravy train. As reporter Paige St. John detailed in one of the Gannett articles, lawmakers in Tallahassee are showered with insurance industry money that is intended to buy political influence and, incredibly, under current Florida law almost all of that money is hidden from public view:
    Insurers invested $18.7 million in Florida's state campaigns during the 2002 and 2004 election cycles. They helped seat many of the top officials and lawmakers who will ... decide rate hikes or limits on relief in the future.

    The biggest recipients are state Chief Financial Officer Tom Gallagher, followed by Gov. Jeb Bush and the lawmakers who sit on insurance regulation committees.

    There is more -- money spent on drinks, dinners and trips, checks directed to favorite charities and the salaries for a slew of high-priced lobbyists. Most of that is not disclosed.

    Insurers paid more than $739,000 in 2003 to entertain and feed lawmakers debating legislation meant to help the industry. They are not required to say who they spent it on.

    They donated millions more to the pet causes of those with whom they want to curry favor, gifts that usually go unreported.
    As long as our lawmakers feed themselves at the insurance industry trough, you can be sure that any 'reforms' they enact will be temporary band-aids at best.

    What is needed at least as much as immediate hurricane relief is institutional reform of a system that allows the regulated to buy the regulators.

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