In the view of David Schiff, the feisty editor/writer of the Insurance Observer, the publication that gave the insurance industry fits from 1989 to 2007, the problem with the National Association of Insurance Commissioners is it is neither fish nor fowl.
He says the NAIC “has a logical function because it is trying to standardize things,” but its problem is that it has no way to enforce its decisions. “I have issues about what the NAIC is,” he said. “It is not a government organization. It’s a private club. It is not accountable to anyone.
“It is a non-accountable public entity that provides a sort of regulatory function,” Schiff says.
At the same time, he says, it has a great deal of authority as a clearinghouse for critical insurance information.
“But, it can’t be forced to do anything, for example, to provide the public access to the data it collects,” he said.
“A main issue I have with the NAIC is disclosure,” Schiff said. “It is a private organization. You can’t file a freedom of information request to get anything from the NAIC. It is a private organization, quasi-public. It’s work is secret.”
Schiff says if the NAIC is a government organization, then it should be part of the government. “I’d rather like the NAIC to be part of the federal government so that it could be forced to disclose its information, like EDGAR is used by the SEC to provide financial statistics on public companies to the public.”
Schiff cautions that he is “no enemy of the insurance industry,” He points to his insurance background, starting out at his uncle’s company, a national insurance brokerage, in 1977. “I’m not against the industry,” he repeats. “I am against cheating, dishonesty and fraud, whether it be by the policyholders or the companies.”
In 1987 he took over the insolvent Emerson, Reid & Company and helped build it into the leading wholesale insurance brokerage specializing in New York state disability benefits, a niche product offered only in that state.
He started the Insurance Observer in 1989, and once won a George Polk award for his expos?s on mutual insurance companies. He called it the “world’s most dangerous insurance publication” before ceasing publication in 2007 because “I didn’t want to be consumed by it.”
Besides his efforts to force mutual insurance companies to be either mutuals or stocks, his attacks on so-called “mutual holding companies,” Schiff first raised the alarms about American International Group’s heavy investment in swaps and derivatives in March 1993.
Ultimately, AIG’s derivatives investments reached $2.77 trillion by September 2008, forcing the federal government–which had no authority at the time to regulate insurance whatsoever–to loan the company up to $191.4 billion at its peak in order to keep it solvent.
Besides its “quasi-public status,” Schiff’s criticism of the NAIC includes the fact that there is no consistency in regulation.
Some states, like New York, have effective regulation, Schiff says, but there is no uniformity.
Some regulators are appointed, others are elected, he notes. In most cases, “it is a transient job, and the commissioners too often use it as a springboard for a job in the insurance industry.”
Another persistent problem is that regulators are timid, Schiff says. “When something goes wrong, it is hard to get them to fix it,” citing the problems in many states for regulators to act appropriately in handling mutual-to-stock conversions, for example, he said.
“There was lots of money involved,” Schiff says in recalling his battles to ensure a fair share for the policyholders in mutual-to-stock conversions.
“Regulators are under a lot of pressure from the industry,” he said. “I have seen an awful lot of bad stuff that is very disappointing. Being an “insurance commissioner is a complicated job, and many insurance commissioners don’t have experience in the field when they are appointed.”