Leonardi: NAIC Process to Find Firm to Perform In-house Corporate Governance Probe ‘Hijacked’
August 17, 2014 by Thomas Harman
LOUISVILLE, Ky. – Connecticut Insurance Commissioner Thomas Leonardi is again questioning corporate governance practices within the National Association of Insurance Commissioners, saying the process to select an outside consultant to examine the NAIC’s corporate governance practices was “hijacked” from the panel that started the process.
Leonardi spoke to Best’s News Service at the NAIC’s Summer National Meeting, the day after a deadline for vendors to file requests for proposals to do the probe passed.
He originally questioned the NAIC’s governance practices in a letter he released just after having failed last December to convince the NAIC’s executive committee to hire an outside contractor to examine NAIC’s processes. The letter to all commissioners said an outside consultant was needed to investigate NAIC’s governance structure. Initiatives to pursue included a clarification of the role and authorities of officers, the executive commissioner and broader membership in making key decisions impacting state regulation, with particular attention given to how NAIC appoints representatives to external forums such as the International Association of Insurance Supervisors (Best’s News Service, Dec. 16, 2013).
In rejecting Leonardi’s motion, the panel decided to let an in-house ad hoc committee address the matter. That panel later became the governance review task force, led by Chairman John Huff, Missouri’s insurance director. Ultimately, that panel recommended to begin the process by which an outside consultant would be chosen, but Leonardi said the panel never got to choose the vendor.
Leonardi said during a private “commissioners conference” earlier this year in California where he was not present but listened to the proceedings by phone, NAIC President Adam Hamm moved to create a subcommittee made up of five NAIC executive committee members that would perform interviews and make a recommendation to the committee about which vendor to choose.
The NAIC has received as many as a half-dozen potential vendors who submitted requests by the Aug. 15 deadline and soon the new subcommittee will begin its work. The panel is chaired by Wisconsin Insurance Commissioner Ted Nickel and includes President-elect Monica Lindeen, Vice President Michael Consedine and past presidents Roger Sevigny of Vermont and Jim Donelon of Louisiana. Of those, Leonardi said the only one voting with Leonardi’s proposal was Donelon.
Leonardi said one of the main issues in the request for proposals for which contractors are being sought is for the contractor to examine the role of officers. “This issue was raised and it was kind of pooh-poohed,” he said. He said the matter should have remained entirely within the task force perhaps with Huff choosing members of the interview panel. He said outsiders were likely to have a negative perception of the panel’s makeup, given its December votes against his motion to seek a contractor. He said the entire process was abused and no explanation given as to why it was taken from the task force. “The bottom line is that to the outside world — and certainly to me — it appears as though at the last moment this very good process now is being hijacked for control purposes,” Leonardi said. “That’s the way the world is going to see this.”
But members of the new panel defended the process. Hamm said the subcommittee’s recommendations would be returned to the task force, who would then make a referral to the executive committee for a final approval. Hamm said the membership of the panel was arrived at because four members covered all geographic zones and said Sevigny was added because of his experience with governance review. A majority of the panel — Sevigny, Lindeen and Donelon — are members of the task force, Hamm said. “We wanted to choose five people who are above reproach,” Hamm said. Consedine said the governance task force would have a significant role to play in selecting the vendor after the interview panel makes its choice.
As for the process of choosing a vendor, the NAIC announcement of the request for proposals said the executive committee expects to make a choice in mid-September. Hamm did not put a definite time line on the selection and said the NAIC does not need to hurry. “I’m not concerned about doing it fast or doing it slow,” he said. “I’m concerned about doing it right.”
Leonardi, however, said the entire process “underscores all the points I made in December.” The governance review task force, whose meeting was initially cancelled, is expected to meet on Aug. 18.
