Consultant to examine NAIC governance procedures, external and internal relationships

UPDATED 7/16 10:30 am with NAIC education initiative news:

Seven months after Connecticut Insurance Commissioner Tom Leonardi recommended hiring outside consultants to conduct a thorough evaluation of the governance structure of the National Association of Insurance Commissioners (NAIC), its Executive Committee has finally decided to go forward with the move.

The NAIC Executive Committee recently voted unanimously to accept the recommendation from its Governance Review Task Force to hire a consultant to assist in a comprehensive review of NAIC governance, the organization announced July 15.

The Governance Review task Force stated in its draft that the consultant should “compare NAIC’s organizational and governance model with best practices of associations, business or nonprofits that are comparable to NAIC, where practicable.”
The draft scope of work, dated June 13, contemplates a broad review of the NAIC’s organizational structure, committee processes and external engagements with with international bodies, including the International Association of Insurance Supervisors (IAIS), and interactions with federal bodies, including Congress, the Federal Reserve, the Department of Treasury, its Financial Stability Oversight Council (FSOC) and the Federal Insurance Office (FIO), including how NAIC strategy and message are developed.
The hiring committee is made up of some of the NAIC officers such as Pennsylvania COmmissioner Micahel Consedine even as one of the organizational reviews includes analysis of the role and authority of the Executive Committee, NAIC officers, the NAIC CEO and the organization’s management.
Back on Dec. 11, 2013, in a startling passionate letter that went as “viral” as anything the NAIC as an organization had ever been involved in to date, Leonardi blasted the organization for cronyism, acceptance of weaknesses and “so-called leadership.”
Anyone keen to revisit that letter and its colorfully-rendered revelations of NAIC discord and fissures within the ranks from the former CEO and business executive, who is as familiar in Washington and international insurance regulatory circles as he is in Connecticut can read about here and here.  It doesn’t lose its flavor months later.
“We cannot choose our fellow commissioners or always compensate for each other’s weaknesses, but we can make sure that our organization is structured and governed in a way to minimize the negative consequences of those realities,” Leonardi stated in the letter to his fellow state regulators, after detailing a variety of shortcomings and allegedly unprofessional behavior in the NAIC ranks.
The NAIC and Leonardi both have acknowledged in various ways that state insurance regulation is on the line, challenged by contemplated and real federal oversight moves and international pressures.

The 2010 Dodd Frank Act measures are slowly being enacted despite attempts to abridge or curtail them, and international efforts for global  insurance capital  standards have been embraced in a bear hug of the world’s top banking regulators,  threatening to squeeze the state out of state regulation of insurance, according to some insurance sector participants.

The NAIC said it anticipates issuing a request for proposals this week to help selection of a consultant and is targeting early September for the work to begin.
Leonardi, who was shut down in the December NAIC national meeting with his corporate governance proposal by the leadership and others, who decided to table a decision until after the current storm of outrage from Leonardi had subsided, is not part of the selection team.
In 2014 an Executive Task Force was formed and charged with making a recommendation to Executive Committee on whether to retain a consultant.

“I look forward to working with fellow regulators on a fair and open process that will ultimately strengthen the effectiveness of the NAIC and enhance our common mission of consumer protection and state-based industry oversight. Good governance is extremely important to the constituents we serve. It is my hope that the consultant vetted and eventually recommended by President (Adam) Hamm’s subcommittee is one who will deliver world-class expertise to this task and who will be afforded unfettered access to our organization in order to conduct an independent and unbiased review.”

Hamm’s statement acknowledged Missouri Insurance Director John Huff for his leadership on the Governance Review Task Force.
“As in past reviews of NAIC governance, we hope the consultant can assist us in facilitating a thorough evaluation and identifying best practices for us to consider,” stated Hamm, also North Dakota insurance commissioner.
The RFP will be posted on the NAIC website upon issuance, with actual contract with the consultant expected in late August.
Word on the cost or budget for the consultant was not disclosed.
The NAIC makes use of consultants in many areas from technology systems to legal and actuarial support human resources to accounting policies that accepted in 2011 a target operating reserve of 80% to 91%.
To help educate domestic and international policymakers about the actual workings and effectiveness of the U.S. regulatory system, the NAIC proposed, for example, in the 2014 budget, to retain the services of one or more consultants to help generate an educational outreach program intended to raise the awareness of the state-based system of insurance regulation in the U.S.

Interestingly, the nAIC announced a day later, July 16, that it had just launched this educational initiative, called  ‘Protecting the Future…’

Calling it unprecedented, the nAIC is deploying it in  Washington,  Brussels, the capital of the European Union; and in Basel, Switzerland, the seat of the Financial Stability Board (FSB) for the G-20.

“It is a critical time for state regulators as some federal officials and global regulators are seeking unprecedented authority over American insurance markets, including the imposition of bank-centric regulation on insurance companies,” the NAIC stated, claiming state regulation  has  a nearly 150 year history, even during the 2008 financial crisis, of protecting policyholders and helping to prevent an even deeper economic downturn.

With this  education initiative in mind, the 2014 budget projected about $12.220 million for outside consultants, down from $15.69 million in 2012 and about even with 2013 budget number amount. The budget did not appear to include the corporate governance consultant in its projections.

Day One of NAIC Int’l forum showcases CT — and corporate governance

“When it comes to insurance, we, the states,  are here to stay,” said Connecticut Gov. Dannel P. Malloy to attendees at the NAIC International Forum in Washington, D.C., today.

Malloy sought to turn the conversation about states versus federal regulation on its head by asking whether enough is being done in Washington to open up the door of opportunity for U.S. companies.

Malloy, whose appointed  insurance commissioner Tom Leonardi is traveling on international insurance supervisory business, acknowledged that the state system has to  “continuously evolve and consistently live up to the responsibility” of supervision, but expects to be nothing less than partners with the federal and international apparatus set up to also oversee insurers.

Connecticut is very active in international supervisory colleges overseeing insurance companies and Leonardi has made no bones about his distaste for the Federal Insurance Office (FIO) to join them.

Malloy made it clear he thoroughly backs the bold-speaking Leonardi.  When asked by NAIC President Adam Hamm about what advice he would give to the three U.S. federal officials who sit on the G-20’s Financial Stability Board (FSB) about the  lack of a state regulatory  voice in global insurance supervisory deliberations at thee top level, Malloy answered, “Give up your seat to Tom and myself.”

The three FSB members are Treasury Secretary Lew, SEC Chair Mary Jo White and Federal reserve Chair Janet Yellen.

“We are wasting a lot of time and  a lot of energy with a debate that has no chance of success, so let’s get to work and get it working for all of us,” he said to a room of European and U.S regulators and lobbyists.

Malloy said he takes his state as an insurance capital seriously, and means to supervise companies doing  business in his state so risk “has no safe place to hide.”

Connecticut made a strong showing at the forum this year, with Kathy Belfi, director of financial regulation for the state insurance department speaking on best practices for supervisory colleges.

On Belfi’s wish list for future  supervisory colleges are long term relationships with non-US supervisors and increasing the number of participants.  Belfi would also like to see a more coordinated approach on target exams, she said.

The ascendance of corporate governance as a focus formed a large part of the panel discussions Tuesday. More questions keep arising and it will be a large part of reviews, of the IAIS’ ComFrame process and of just assessing other insurers, Belfi and non-U.S. regulators agreed.

It is part of “everything we think and do from now on,” said Vermont Insurance Commissioner Susan Donegan, who had just returned from Kuala Lumpur for the NAIC. Donegan even wrote a haiku on corporate governance during a panel discussion

“You know if there is a company failure,  you know there re corporate governance failures,” said Christina Urias, a seasoned regulator  on the state and international arena and  now an insurance consultant for the IMF.

Whatever happens on the world stage with respect to international standards and reviews, Gov. Malloy stressed that the states will not be “dictated to.”

“We may get a set of regulations that we significantly embrace,” Malloy said, noting there was a lot of room for modernization but that the supervisory apparatus should go slower.

Author: Liz Festa