NAIC President-Elect James (Jim) Donelon, courtesy NAIC website

The National Association of Insurance Commissioners (NAIC) is searching for that special someone, and although no name has yet jumped off the page, the search is on for that “rare individual—who will bring needed credibility to the NAIC in Washington and be a facile communicator capable of amassing support to stop federal intrusion into state regulation,” according to a top NAIC official.

The next CEO of the NAIC, with the imminent departure of Terri Vaughan, will be selected to “protect the state-based system that has served us so well for over 100 years,” said NAIC President-Elect James J. (Jim) Donelon of Louisiana in a phone interview on Monday.

“It will take a special person to take us to the new level,” he said. No one had been identified yet, and the interview process has not even begun, although it could, next month.

When asked what the next level referred to, Donelon said, “my reference is frankly on Capitol Hill (both the Congress and the Administration) where the challenge is the greatest.”

That’s because of the emergence of the federal government in the insurance arena.

“We support it as necessary on the international level but we don’t feel it is appropriate for the federal government to take over or even further encroach on the success of state regulation going back over 100 years now,” the Louisiana insurance commissioner said.

Hiring the correct person is “vitally important for the preservation” of the state insurance system. 

Donelon said he had just gotten off the phone with a colleague and had told the person that his choice for the next NAIC CEO would be more important than anything else he does next year as elected NAIC president.

In discussing qualifications of such a person, Donelon said there must be “gravitas to that position,” and it must be a person that commands respect and can articulate our successes to Capitol Hill [and the Administration.] 

He didn’t shy away from the suggestion of a political figure or a state governor, but noted that the NAIC cannot pay, say, what a Washington insurance trade association pays for successful ex-governor-leaders.

The NAIC is not registered as a lobbying organization nor are its employees, so any candidate would be not acting as a registered lobbyist as is common with former politicians (a 2011 Tax Form 990 for the American Council of Life Insurers (ACLI) shows both the immediate past president and current president (former Idaho Gov. and George W. Bush cabinet member Dirk Kempthorne) earn just a bit under $1,000,000 in stated annual salary (about $977,000)—but some trade association chiefs top even that).

In January of 2008 the NAIC released pay information for top executives that stated that previous NAIC CEO, Cathy Weatherford’s base salary was $370,000. Compensation apparently also came from other NAIC project sources. The NAIC no longer discloses top officials’ salaries as it used to, but one source said that Vaughan makes about $675,000 from all NAIC sources/bonuses.

Donelon called Vaughan “irreplaceable, a person who has done an outstanding job for us in raising our profile in the international arena,” enhancing the NAIC profile and its credibility particularly abroad. Donelon said that he even pleaded with her to stay throughout his upcoming term as NAIC president noting, surprisingly, that she also tried to leave a year ago and current NAIC President and Florida Insurance Commissioner Kevin McCarty begged her to stay on through his term, and she did.

But for Donelon—no dice—she wanted to get back to family, her son’s projects, and editing the text book (Fundamentals of Risk and Insurance, which she originally published in 2004 with her late father, Emmett Vaughan and which was last revised in 2007) he and others have said. Vaughan will be at the NAIC Fall Meeting, which kicks off November 29, the NAIC said.  Her last day is November 30.

Vaughan started her tenure in February 2009, and was a professor of insurance and risk management back at Drake University and as a paid member of the board at The Principal Financial before being hired, after many years as a state regulator.

“Terri has been extraordinarily successful as CEO of the NAIC, which is not at all surprising to those of us with the good fortune to know and work with her. I wish Terri all the best professionally and personally as she transitions into her next endeavor,” stated Michael McRaith, Director of the Federal Insurance Office (FIO.) McRaith has worked with Terri both as an Illinois insurance director and alongside or in concert with Vaughan on the international front representing, respectively, U.S./state regulatory interests internationally.  

People who have been in the room with her when she debated accounting standards with international regulators say she pinned them to the wall when they suggested that the U.S. be required to use European standards to be equivalent, and proved prescient on issues before the government debt crisis on Greece and elsewhere, and on the dangers of striving for strict equivalency with regards to Solvency II.

Donelon offered a glimpse into the NAIC hiring process at the time (Cathy Weatherford left in the summer of 2008) by noting that the NAIC Executive Committee was well into the interview phase when Vaughan’s name came up “and we reverted to her–and we changed direction and hired her.”

Donelon, who was speaking by phone from San José, Costa Rica where he is there for a conference of Latin American insurance supervisors, the Asociación de Supervisores de Seguros de América Latin, (ASSAL), discussing issues such as the International Association of Insurance Supervisors’ (IAIS) ComFrame, and Europe’s Solvency II, talked about his own transformation during the Vaughan years where he began to embrace the importance of participating on the global stage as an association.

The FIO is working with the IAIS and the ASSAL to develop and improve globally applicable reinsurance regulatory standards. IAIS, Basel, Switzerland, is working to prevent financial and policyholder calamity on a global scale in the wake of supervisory shortfalls and gaps in oversight revealed by the 2008 financial crisis.

 “Our industry pleaded with us-–it urged us into the international arena,” he said.

“Five years ago, we weren’t even engaged. Now we are up to our elbows in it,” Donelon said. “We see the absolute importance of being involved on the international level.” He said Vaughan and the industry played a part in this and now he follows it all, including the important EU-US Dialogue.

Even two years ago or less, “I questioned if we were paying too much attention on international issues and whether we should stick with our knitting, and then I changed positions on that,” he said, after hearing about how the industry and their consumers would be effected. He said it was a gradual change, not an epiphany, aided by how Solvency II would play a part in changing things.

Donelon pointed out that he has to take an international view, as Louisiana is a coastal state and is, a property and casualty risk, “totally dependent on the reinsurance market,” which is dominated by the  foreign  market from London and Zurich to Bermuda and Canada.

The NAIC has retained executive search firm, Egon Zehnder International, to help find and recruit a CEO. The cost of recruiting expenses in the NAIC is over-budget in 2012 and due to spike in 2013 due to the search for a new CEO to replace Vaughan, according to the organization’s proposed 2013 budget document.

The majority of the over budget variance in 2012 is directly related to the search for a new CEO. The 2013 budget assumes additional expenses related to the CEO search and an increase in reliance on external recruiting services for the attraction of NAIC employees in 2013, the NAIC stated in its budget.

Look for Donelon to make sure he gets his/NAIC’s money’s-worth. A few floated names from a source close to the NAIC are said to include insurance commissioners, ex-commissioner now industry henchman, and a D.C. retirement products lobbyist. All those National Underwriter is familiar with are known for being good public speakers.