Public Policy Analysis & Opinion

Catherine J. Weatherford leaves NAIC

Much speculation surrounds the departure after 12 years of iron rule

By Kevin P. Hennosy

National Association of Insurance Commissioners (NAIC) Executive Vice President Catherine J. Weatherford abruptly and without warning ceased to work for the Association on July 1, 2008. Two days later, that Association announced that Weatherford would be a paid consultant to the NAIC through September of this year; but at the same time Andrew Beal, deputy executive vice president and chief legal officer, was named acting executive vice president and CEO. It was a convoluted end to a controversial tenure.

Word first leaked out of the NAIC headquarters that a changing of the guard was imminent on Monday June 30. Rough Notes contacted Weatherford via electronic mail, but she did not respond to the basic question of her employment status. By mid-day on Tuesday July 1, word of Weatherford’s separation from the NAIC was confirmed by personnel in several state insurance departments.

As late as noon on July 2, NAIC spokespersons denied to Association staff that Weatherford had left, but then reversed their position later that day. A vaguely worded statement was posted on the NAIC Web site on July 3, after most of the insurance trade journalists had filed their stories in a holiday-shortened week.

It is still not clear if Weatherford fell from grace or was pushed. The NAIC press statement carefully avoids terms such as resignation, retirement or termination.

The statement carried a quotation for attribution to Weatherford: “I have served for many years in the area of state insurance regulation and now I am ready for a change. I always try to keep an open mind about what the future holds and I have an interest in many other areas, so I will pursue another professional career. While my decision to leave the NAIC was not an easy one, I know I am leaving the Association in capable hands.”

There is also considerable speculation among insurance sector lobbyists who follow the NAIC if Weatherford might have received the same kind of financial settlement that she was so fond of using when senior staff left the NAIC under her tenure. It became common practice for Weatherford to offer departing staff members a large sum of money in return for signing a contract that forbade the former staff member from speaking disparagingly about the Association, its management or even acknowledging the existence of what amounted to a hush-money agreement.

Just what led to the quick and bungled departure of Weatherford remains a matter for speculation. It is difficult for most observers to believe that she simply decided after 12 years to resign on a Tuesday afternoon.

It is true that Weatherford had enemies, but she had very carefully surrounded herself with commissioners and senior staff whose personal loyalty to her was so strong that enemies were never able to do harm to her career. Cathy Weatherford looked at commissioners and staff with binary certainty: Those who were with her and those who were against her.

Those who believe she was pushed out by enemies in the insurance sector point to several controversial decisions taken by the Association leadership in the last year. Some commentators point to the Association’s plans to expand the type of market data it collects from the insurers. Others suggest that the Association’s lobbying strategy in Washington made powerful players in the industry upset with Weatherford’s management.

For example, the NAIC offered “conditional support” for HR 5840, the Insurance Information Act of 2008. The version of the bill being discussed in late June provides for the following authority:

The legislation would establish an Office of Insurance Information in the United States Treasury Department. The office would hold authority to “to receive, analyze, collect, and disseminate publicly available data and information and issue reports regarding all lines of insurance except health insurance.”

In addition, the legislation grants authority to the Secretary of the Treasury “to establish Federal policy on international insurance matters and ensure that State insurance laws are consistent with agreements relating to such Federal policy entered into by the United States or on its behalf by a designated representative (including the Secretary of the Treasury and the United States Trade Representative) with a foreign government or regulatory entity.”

Furthermore, the legislation establishes authority “to advise the Secretary on major domestic and international insurance policy issues, including matters that affect consumers and insurers, such as bond insurance and other financial guarantee insurance, private mortgage insurance, catastrophe insurance, and reinsurance collateral requirements.”

The legislation provides for preemption of state laws and regulations that “is inconsistent with Federal policy on international insurance matters set forth in an agreement entered into by the United States or on its behalf by a designated representative (including the Secretary of the Treasury and the United States Trade Representative) with a foreign government or regulatory entity.”

Supplemental to the establish-ment of the Office of Insurance Information, HR 5840 would create an advisory committee to that office. The legislation grants authority to the Secretary of the Treasury to appoint up to nine members to the committee which “shall include representatives of the National Association of Insurance Commissioners, the Department of Commerce, and the Office of the United States Trade Representative, and such representatives of the insurance industry, consumer groups, and other organizations as the Secretary determines are appropriate.” (Emphasis added.)

Illinois Insurance Director Michael T. McRaith testified on behalf of the NAIC before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. Director McRaith said: “We support HR 5840, subject to some important clarifications. This conditional support hinges on the proposal not changing in ways detrimental to insurance consumers.

“We look forward to continuing our constructive and substantive discussions to produce a measure that will garner our full support,” McRaith said.

The NAIC’s support for the bill is somewhat surprising, especially when one looks at the two provisions being touted by Director McRaith: “State insurance regulators support the bill’s objectives of (1) allowing a federal agency to work with state insurance regulators to receive and analyze industry data; and (2) establishing a central point of contact in the federal government for foreign governments regarding international insurance matters.” Both of these provisions seem to infringe upon functions that the NAIC management has exploited for financial and political gain.

The first provision seems to strike at the NAIC’s primary source of revenue: insurance data collection and sales. Over the past 38 years, the NAIC has developed a business model that relies on the states to compel insurers to file financial statement data with the NAIC on an annual and sometimes quarterly basis. Insurers pay a fee to the NAIC in accordance with this filing, which provides a material portion of the organization’s operating revenue—generally 40%. In addition, the NAIC sells that data to interested parties from the financial services industry and academia, which generally provides another 35% to 40% of the NAIC’s annual revenues. These revenue figures assume that the budget data released by the NAIC is relatively accurate; however, since the NAIC refuses to file the usual sworn financial statements that should be filed with the IRS by tax-exempt organizations, we cannot be sure.

If a federal office became active in receiving and analyzing data, the NAIC’s business model would be severely threatened. Why not simply file data with the Office of Insurance Information, which would not be dependent on fee data to pay senior managers’ salaries approaching a half-million dollars a year?

Some observers might speculate that the NAIC might work out an agreement with “the Feds” to deputize the Association as a receptacle for industry data; however, the NAIC has balked at such proposals in the past. A contracting arrangement with federal officials would expose the NAIC to requirements concerning conflicts of interest, employment and financial transparency to which the management simply does not want to adhere.

Does this mean that the NAIC might accept a change to its business model? Possibly, because the Association has launched a series of highly integrated “affiliate” organizations that generate fee revenue from producer licensing and rate and form filing. That revenue makes its way back to the NAIC through management agreements.

In a way, the NAIC might have reached the same conclusion that Michael Corleone reached in “The Godfather Part I” when he decided that the family should leave the olive oil business to focus on the casino business. The change in revenue sources did not change the basic mission of the organization.

International Influence

One would expect the NAIC management to be a bit more leery of giving up the role it created for the NAIC on the international stage. The NAIC management has used international travel as a plum for its own enjoyment and a means of instilling slavish loyalty among state regulators. If the management does not view a regulator as a “team player,” he or she is not added to the international travel team.

The state regulators association’s fixation with international travel has led to an archipelago of bilateral agreements between the NAIC, foreign countries and several regulatory associations. These Memorandums of Understanding serve to open U.S. markets to companies from jurisdictions that the NAIC management has deemed to regulate effectively—usually in return for allowing one or more U.S. companies into the compacting jurisdiction.

This is a role completely of the NAIC’s making. There is no Constitutional or legal framework that the NAIC can point to in order to justify its actions as gatekeeper to American insurance markets, so Weatherford might have just come to the realization that “the jig is up,” so she tried to cut a separate deal with Congress.

That kind of arrangement might have been possible under a more independent executive vice president. In the late 1980s and early 1990s, former NAIC Executive Vice President Sandy Gilfillan had worked hard to assure the independence of the NAIC from the insurance sector, which the Association’s members regulate. It was not a confrontational relationship, but Gilfillan maintained an arm’s length relationship with the industry.

Former Executive Vice President David Simmons tried to build upon the Gilfillan model, but his tenure was shortened by a politically motivated boycott of annual statement filing fees owed to the NAIC by property casualty insurers. The NAIC had formed a committee to investigate urban redlining. Simmons and a relatively weak cadre of NAIC officers that he had to work with did not publicize the boycott, which allowed their opponents to tar Simmons’ management performance. A budget shortfall that resulted from lost revenue due to the collusive boycott was presented in terms of Simmons spending too much money.

When Weatherford took over in 1996, she followed an approach aimed at expanding direct control of the Association’s policies and operations by trade association and company representatives. She entered into accords with trade associations like the “Nick’s Fish Market Agreement” in which she promised to let industry leaders control NAIC operations in return for unfettered payment of annual financial statement filing fees. This approach resulted in relative peace with the insurance lobby as long as the NAIC under Weatherford assumed a subservient role to industry trade groups.

Some will argue that Weatherford’s departure for vague reasons was simply an instance consistent with the old proverb that says: Those who try to ride the back of the tiger very often end up inside. In other words, Weatherford gave industry leaders control over how the NAIC was run; and when she tried to act independently in the Association’s interest, they used that undeserved power against her.

Yet even this explanation does not quite jibe with the unceremonious end of Weatherford’s career at NAIC. Something still looks and feels wrong. It is safe to say that with regard to Weatherford’s departure, there is more to come. *

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.