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January 29
10:12 2018

Public Policy Analysis & Opinion

A well-deserved tip of the hat to a nearly forgotten leader

Yes, I am disgusted with the contemporary manifestation of the National Association of Insurance Commissioners (NAIC); once a year, however, I think about what might have been.

Each year the NAIC bestows the Robert Dineen Award for Outstanding Service and Contribution to the State Regulation of Insurance. The NAIC established the award in 1989 to recognize the career achievements of long-serving insurance department staff members.

According to Dineen, the primary reason for the NAIC’s existence is to enhance uniformity in insurance public policy while preserving the limited need for local flexibility.

This year the NAIC gave Dineen Awards to two state regulators: Charles Angell, deputy commissioner and casualty actuary of the Alabama Department of Insurance, and Paula Pallozzi, associate director of the Rhode Island Insurance Division.

“These two regulators exemplify the best of us and the collective work we do to enhance state-based regulation,” said Ted Nickel, NAIC president and Wisconsin insurance commissioner. “Angell and Pallozzi have taken leadership roles in our work in big data and data collection—work that ultimately protects consumers.”

Charles Angell joined the Alabama Department of Insurance in 2008 as a casualty actuary and was named deputy commissioner in 2009. Since then he has made significant contributions to state insurance regulation, participating in 19 committees, task forces, and working groups. Most notable, Angell has served in an actuarial advisory role with the NAIC’s Property & Casualty Actuarial Credential/Qualification Study, an ad hoc group of the executive (EX) committee. Angell also has been an instrumental member of the NAIC’s Big Data (EX) Working Group.

Paula Pallozzi joined the Rhode Island Insurance Division 35 years ago and served as chief property and casualty rate analyst from 1997 to 2013. She was promoted to associate director of the Insurance Division in 2014. Pallozzi is an active member of the NAIC’s Property and Casualty (C) Committee and has served as chair, vice chair, or co-chair of working groups devoted to data collection and other catastrophe-related issues.

Who was Dineen?

The award also honors the memory of Robert E. Dineen, who played a vital role in the construction of the state-based insurance regulatory framework from the 1940s until the 1980s.

Dineen served as New York insurance superintendent under Governor Thomas E. Dewey. The governor made a prudent choice in his appointment of Dineen, who had a law practice in Syracuse. Dewey’s biographer Richard Norton Smith notes that the governor left the superintendent’s post open for months, without explanation.

In 1944 the Supreme Court in U.S. v South-Eastern Underwriters Association rocked the insurance world by ruling that the business of insurance is interstate commerce and subject to federal oversight. For months NAIC leaders whined in denial. Dineen joined a slate of candidates for NAIC office who advocated affirmative negotiations with Congress and the Roosevelt Administration—even as Governor Dewey ran against Roosevelt’s bid for a fourth presidential term.

As an NAIC officer, Dineen took an active role in negotiating legislation that became the McCarran-Ferguson Act (Public Law 15 of 1945), which tendered a limited and contingent authority to regulate insurance from Congress to the several states. Dineen also worked with industry lobbyists to write and promote the “All-Industry Bills,” model state legislation designed to stand in the shoes of federal antitrust law and Federal Trade Commission oversight. In 1950 Dineen left government service but remained interested in public service.

Edmund Fitzgerald, then president of Northwestern Mutual Life Insurance Company, recruited Dineen. (Yes, the company invested in the ill-fated super-ship and affixed the boss’s name to it.) Because the company had attracted federal probes dating back to the 1930s, Fitzgerald probably admired Dineen’s ability to work with federal officials. Dineen worked as part of Fitzgerald’s management team, which modernized the company and took it into higher-risk products. Dineen served as the company’s president from 1965 to 1968.

The paper

Even as an insurance executive, Dineen remained a force at the NAIC. In 1958 Congress prepared to apply an oversight investigation to the insurance sector and the state-based regulatory framework. Dineen joined with Lillard W. Culver Jr., and R. Paul Rosenheimer to write a paper that proposed reforms.

The paper, A Stronger NAIC, Insurance Regulation in the Public Interest, identified three objectives for the NAIC: (1) uniformity of state statutory requirements, (2) integration of the regulatory framework, and (3) cooperation with outside interests. Also the paper argued for the creation of an NAIC central office—a staff function and a cooperative asset to strengthen national regulation of insurance.

Dineen believed that the central office approach would offer another benefit: improved research. According to Dineen, “The absence of staff and funds has made it difficult in many cases to adequately summarize and preserve the basic research underlying many of the projects successfully undertaken by the commissioners over the years.”

Dineen welcomed the fact that because NAIC data come from the action of state insurance departments, it would be public record.

According to Dineen, the primary reason for the NAIC’s existence is to enhance uniformity in insurance public policy while preserving the limited need for local flexibility. Dineen wanted local prerogatives preserved in areas that affected individual states’ revenues: taxation, company organization, and extinction of companies.

Uniformity was necessary to “secure reciprocity, establish a uniform blank (annual financial statement), prescribe powers and duties of state officials, prescribe legal remedies for emergencies and prescribe proper reserves …” In other words, at times one size should fit all.

Dineen also listed many examples of where the NAIC served to integrate the several states’ regulatory efforts. Dineen used the term “integration” carefully to mean the incorporation of equally weighted units into a single system.

For example, each state did not need a separate annual statement, if each state had equal input into the formation of a uniform annual financial statement at the NAIC.

In arguing for a staff function, Dineen also expressed his concern that an underlying inequality existed among the states. Equality among jurisdictions has not always been the norm at the NAIC, and Dineen understood the damage done by inequity.

As a former New York insurance superintendent, he understood the power of a large state insurance department. States that had the resources to lend to NAIC activities possessed extraterritorial influence over states that did not have such resources. He cited particular concern about the power of California, Illinois, New York, and Pennsylvania.

In his paper, Dineen called on the NAIC to “distribute basic information more equitably among all Commissioners and members of their departments, not as a matter of accommodation but as a matter of right.”

Integration was a step beyond uniformity because it allowed for local flexibility within a national system. Only when state jurisdictions felt equal at the NAIC would regulators be willing to work as a national unit.

Borrowed authority

Robert Dineen did not demonize federal officials as do today’s state regulators. He understood that after the Supreme Court ruled that insurance is interstate commerce, constitutional jurisdiction over the business rested with Congress. Dineen advised cooperation with Congress, not confrontation.

The limited and contingent delegation of federal authority to the states for insurance regulation through the McCarran-Ferguson Act made it imperative that the states work as partners with the federal government and not as a lobby.

Dineen observed, “In enacting U.S. PL 15 of 1945 (McCarran), Congress made it plain that passing laws by the states to oust Congress is not enough!” Congress would continue to be interested in how these laws were administered.

He continued, “When these periodic investigations come—as surely they will—one of the questions will be: What has the NAIC done to improve its internal structure—to improve its efficiency since the (Temporary National Economic Committee) investigation and since the passage of PL 15? We know that the NAIC has done much good in that interval and that what it has done will stand scrutiny. But we should further ask: Has the NAIC done enough? Has it made the most of this opportunity?”

Without the support of a professional and expert staff, Dineen did not believe those questions could be answered in the affirmative. Dineen documented the great importance of the NAIC and the lack of resources at its disposal.

According to Dineen, the NAIC “ties together the separate regulatory processes of the 48 states into the cohesive national instrumentality required to regulate a national business through the 48 separate regulatory adjuncts. Then we point out a major shortcoming of the NAIC, namely the lack of a professional fact-finding staff in the field of insurance.”

The NAIC was woefully unprepared to foster cooperation among its member jurisdictions because it had no education or research facilities from which to teach. For example, while doing his research for the 1958 paper, Dineen found it challenging to study the history of insurance regulation.

After leaving Northwestern Mutual management, Dineen associated himself with the NAIC as a “consultant.” In the late 1960s the NAIC expanded its staff function under Dineen’s tutelage.

One area of Central Office growth was database systems and management, which generated fee income for the NAIC. At first the NAIC outsourced this function to A.M. Best Company, but the NAIC believed that the rating company unfairly restricted regulators’ access to the database. Ultimately the NAIC brought the function in house.

Dineen welcomed the fact that because NAIC data come from the action of state insurance departments, it would be public record.

Also, Dineen expected the staff to produce independent and creative perspectives on insurance public policy. He did not want the Central Office staff merely to forward company proposals to the regulators. Furthermore, Dineen did not see data collection or analysis as being limited to “solvency-related” elements. After all, neither the South-Eastern Underwriters decision nor the text of McCarran-Ferguson provided for such a restriction.

To ensure that the staff produced independent and accurate research findings, Dineen argued that the NAIC needed independent funding for its operations. He understood the adage “He who pays the piper calls the tune.”

Dineen expected the NAIC staff function to run as a co-op of government entities imbued with a public trust. The Central Staff produced reports related to insurance pricing and other market conduct issues that led to a backlash from insurance carriers.

Ultimately, in the early 1980s a consortium of carrier trade groups used a “filing-fee boycott” and called their tune. A more submissive organization of insurance regulators agreed to a corrupt memorandum of understanding that restricted the NAIC’s database activities to solvency.

The carrier revolt effectively kicked to the curb both Robert Dineen and senior staffers. The NAIC offices moved from Milwaukee to Kansas City, which forced more Central Staff resignations. The carriers took effective control of the NAIC, except for spasms of active oversight from Congress.

Robert E. Dineen died of heart failure on April 5, 1989. I never had the opportunity to meet the man. Nevertheless, I do miss him.

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 Companies 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.

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