When Eliot Spitzer was elected governor of New York, one couldn’t blame insurance carriers and brokers for fearing the worst from their old nemesis—who, as a crusading attorney general, had exposed bid-rigging, contingency fee abuse and balance sheet manipulation via finite reinsurance deals.
Much to the industry’s pleasant surprise, however, Gov. Spitzer, while at times offering tough love, was more helpful than hostile—acting decisively yet reasonably to solve a host of problems.
The first sign that Gov. Spitzer held no grudges was his appointment of Eric R. Dinallo as the new insurance superintendent.
Although Mr. Dinallo used to work with Mr. Spitzer investigating allegations of financial services misconduct, he was no enemy of the insurance industry. Indeed, when tapped for his new post, he was working as general counsel at Willis Group Holdings.
It was also clear early on that insurance was not going to be a regulatory backwater, as Gov. Spitzer in May signed an executive order naming Mr. Dinallo to chair a New York State Commission to Modernize the Regulation of Financial Services. Mr. Dinallo’s goal is to re-imagine what he characterized as an antiquated silo approach to regulation, given the blurring boundaries among the various industry sectors.
Beyond such blue-skies brainstorming, Gov. Spitzer and Superintendent Dinallo rolled up their sleeves and got right to work on a variety of pressing issues.
The duo made a big splash in March when Gov. Spitzer signed into law a workers’ compensation reform bill to fix what he called a “long broken” system. The measure was hailed by insurance lobbyists as a terrific first step, with details on implementation still being worked out.
Injured worker benefits were raised for the first time in over a decade—from a minimum of $40 to $100, and from a maximum of $400 to $500.
It didn’t take long for employers—facing some of the highest premiums in the country for some of the lowest benefits—to see a tangible payoff, as Mr. Dinallo ordered a 20.5 percent decrease in workers’ comp rates in September. That should translate to some $1 billion in savings for the 2007-2008 fiscal year for buyers, according to the insurance department.
In September, Mr. Dinallo proposed allowing open competition among carriers to determine rates instead of the Compensation Insurance Rating Board—the insurer association that now handles that task. However, he also wants CIRB to continue to collect and analyze the underlying data necessary for the rate-making process.
In November, the insurance department proposed medical treatment guidelines for workers injured on the job, both to hold down costs and ensure better care.
To address another troubled line, last spring Mr. Dinallo was named to head up a new task force on medical malpractice insurance reform, just after his department approved a 14 percent rate hike.
Meanwhile, Gov. Spitzer and Mr. Dinallo used their influence to convince seven carriers to end six years of acrimonious litigation and pay $2 billion to settle all remaining claims from the World Trade Center site’s developer.
Mr. Dinallo also launched several regulatory initiatives this fall. One was a proposal requiring property insurers to deposit part of their New York premiums into a catastrophe reserve fund to help pay natural disaster claims and stabilize the market. The move was prompted by the fact that major homeowners carriers had started dumping policies to lower their exposure in hurricane-prone coastal areas.
The department also wants to do away with the automatic 100 percent collateral requirement imposed on foreign reinsurers, replacing it with a sliding scale based on a carrier’s standing with rating agencies. Such an idea has long been debated by the National Association of Insurance Commissioners but has yet to be adopted.
Next year should be busy, as well, with Mr. Dinallo’s department working on a regulation requiring full compensation disclosure from all brokers, while seeking comment on a proposal for principles-based oversight. For better or worse, life under Gov. Spitzer is never dull.
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