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Public Policy Analysis & OpinioN Not-so innocents abroad Trade group challenges NAIC’s addiction to international travel By Kevin P. Hennosy When lawns green-up and flower buds burst forth, even the sleepiest state capitol buzzes with activity. State legislators work like busy bees to create solutions to the problems of the world in order to sweeten the lives of constituents and contributors. (Not necessarily in that order.) The fast-paced life of legislative sessions can wear down even the most hard-boiled insurance regulator. Testifying, glad-handing, attendance at coffees and cocktail receptions thrown by competing interest groups—well it can just be hard on the constitution. So it is little wonder that with the coming of spring, a regulator’s fancy might turn to world travel paid for through the accounts of the National Association of Insurance Commissioners (NAIC). Of course, an insurance regulator might prefer to travel to warm and exotic climes in the winter, but that can prove difficult. During the early winter, family commitments generally impede good fact-finding travel. Then as the new year dawns, governors generally insist that their senior officials stay close to home during the legislative session. And so the travel season for state regulators is often truncated to late spring, summer and fall. Most commissioners understand that their need for overseas travel on NAIC junkets just might attract the ire of hair-shirted critics. Enter the National Association of Mutual Insurance Companies (NAMIC), an association that torments the NAIC on budget issues like no other. The NAIC’s foreign travel bug has not escaped NAMIC’s attention. As the NAIC took comments on its 2007 Budget from industry groups, NAMIC opined on the NAIC’s growing penchant for globetrotting. Representatives of NAMIC had the nerve to file the following statement: “What is an appropriate role for the NAIC internationally? We acknowledge that insurance is a global business and that regulation in this country is generally of high quality and may be of interest to alien jurisdictions. Yet we would observe that reasons for use of NAIC resources seem unfocused with respect to specific goals that benefit U.S. policyholders or insurers. Examination of reasons for expenditures on international matters ought for that reason to be carefully examined. We suggest that the NAIC has no ‘outreach’ obligation for other countries’ regulators and regulation.” (Emphasis added.) What could NAMIC mean by this manic attack on conventional wisdom held by senior NAIC staff and their minions known as insurance commissioners? The NAIC has no international role? What next? Would NAMIC allege that by adopting the Constitution of 1789, the United States reserved the power to regulate interstate and international commerce and trade with the Congress and not the states—let a lone a private entity that does not even file standard financial statements? Okay, ignore that one, just as the NAIC has since 1871. Over the past decade, in the virtual absence of congressional oversight, the NAIC has developed a deeply revered dogma concerning its international role. At the very least, the NAIC has adopted a “white man’s burden approach” that necessitates its “helping” regulators from other lands with what appears to be a colonial fervor. From this “Colonialism” perspective one can understand that if the NAIC shapes international regulation, foreign governments and companies might just buy data and publications from the NAIC. It is a moneymaking proposition. NAMIC continued: “The ‘Executive Summary’ of the budget document repeatedly stresses a mission of protecting U.S. policyholders, but, with respect to international insurance matters, mentions only ‘coordination with … international regulators’ and an initiative to ‘appreciably modernize … International Activities.’ It would be unreasonable to insist on a parochial or wholly U.S.-centered outlook, but we do not see clarity in what the NAIC should do for or receive from non-U.S. regulators or others.” The NAIC touts its international relations prowess in two basic areas. First, the senior staff and a handful of commissioners have negotiated several “memorandums of understanding” with foreign countries. Second, the NAIC has conducted “training programs” for international regulators. The process of drafting memorandums of under-standing generally necessitates overseas travel on the part of one or more insurance commissioners who hold high rank in the association governance. Some negotiations have even necessitated participation by NAIC Executive Vice President Catherine J. (Cathy) Weatherford. The shuttle diplomacy that led to that deal nearly turned ugly when the NAIC “delegation,” including Cathy Weatherford, was briefly detained by Chinese customs. According to former NAIC staffers who worked at the association at the time, Chinese customs officials questioned the extravagance of the gifts that the representatives brought for Chinese officials. Based on her American Express Corporate Card statement from October 2003, Weatherford picked up several items at a Beijing store during an NAIC trip to China. It is not clear how this charge benefited insurance policyholders or strengthened state regulation of insurance. With spending controls like this it is no wonder that the senior staff refuses to file a Form 990 with the IRS. The NAMIC comments about the NAIC’s growing expenditures toward international travel just did not let up. In addition to questioning the appropriateness of the NAIC’s overseas adventures, the comments cast doubt on the practical results of the travel. “We do see substantial and increasing international travel, especially by principal regulators, and we are unsure of the yield from use of these NAIC resources. What is done for the U.S.-domiciled insurance industry by substantial, additional international travel by those who produce no product or conduct no specific representation?” Perhaps I can be of assistance to NAMIC in understanding the real practical results of the junkets. The lobbyists at NAMIC simply need to stop thinking about actual public policy improvements and start to look at what really matters—raw power. Who decides how NAIC funds are spent and what business model the association follows? Who has the influence to help insurance regulators position themselves to advance in the NAIC’s hierarchy? Who can buy the tickets to London, Brussels, Rio or other far-off venues for insurance regulators? Who can purge a commissioner from the travel team? In the past 10 years that raw power that runs the NAIC has concentrated into the hands of Cathy Weatherford, who has used international travel like a political boss uses patronage jobs. This absorption of power by a single staff member has changed the NAIC, because the international role of the NAIC has become a cornerstone of the association’s existence under the administration of Cathy Weatherford. At the same time, the reported compensation of the NAIC executive vice president has skyrocketed and, for the first time in the association’s history, the staff chief received a multi-year contract. Over the years, commissioners and lobbyists alike have complained to me about this concentration of power: “Kevin, why don’t you write about her?” Well I do write about Weatherford’s exploits, and I receive positive feedback when I do, but privately commissioners, lobbyists and staff members are scared of Cathy Weatherford’s vindictive use of power. For that reason I have had people open special e-mail accounts to send me tips on stories. An NAIC public information officer (PIO) once called me from a pay phone in a shopping area near the association offices because the person was afraid the phone line in the office was monitored. The PIO had witnessed Weatherford reading a large stack of e-mail communications between commissioners and NAIC staff. This malicious management style has cost the association in treasure, both in terms of staff talent lost and in terms of hush money paid to outgoing employees who are paid to sign agreements not to sue. It is not clear whether the membership understands how many of these agreements association management has deemed it necessary to pay under Cathy Weatherford’s tenure. A retired state insurance commissioner told Rough Notes that the NAIC executive vice president tied the possibility of travel to loyalty to her aims for the association. The former regulator reports that Weatherford said that commissioners who were “team players” could see the country and the world. There is anecdotal evidence that Cathy Weatherford plays an active role in selecting insurance commissioners in several states, which is not an activity in which an NAIC executive vice president should be involved. Commissioners who want to move up within the NAIC committee system and officer posts do well by ingratiating themselves to her. Those commissioners who want to work for insurance companies or NAIC vendors after their public service know that they should keep Cathy Weatherford on their good side. In what I believe is the most naive request that I have ever seen NAMIC express, the trade association representatives wrote: “We ask, in other words, for justification of and discipline and accountability in use of NAIC funds for international travel.” Just who do they think will provide this discipline and accountability? It is difficult to define a commissioner as a team player if he or she questions Cathy Weatherford’s management decisions, multi-year contract or soaring compensation. Therefore, regulators do not question either element very loud or very often. I can hear the NAIC officers mulling over this request now: “Should I crack down on Cathy’s travel bureau for underworked regulators, or get that trip to Paris?” The lack of discipline and accountability at the NAIC has nearly destroyed its traditional role as a think tank for insurance public policy development. Without adult supervision, Weatherford has transformed the NAIC into a profit-driven business. While that business can generate enough revenue to meet her excessive demands for compensation, the public and the industry are robbed of what the NAIC used to provide to the policymaking process. With her skilled use of political carrots and sticks, Cathy Weatherford might be the most powerful political boss in Kansas City history—Boss Tom Pendergast did not mount overseas operations. * The author |
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