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  • Donelon: Proposal for Two-Year Cooling-Off Period for CEO Hire Is to Prevent Appearance of Conflict of Interest

    April 6, 2016 by Thomas Harman

    NEW ORLEANS – Louisiana Insurance Commissioner Jim Donelon said he’s making a proposal to ban any commissioner with the National Association of Insurance Commissioners from becoming chief executive officer until after leaving the group for two years. Donelon made the proposal during the NAIC’s April 4 executive committee held during the NAIC’s 2016 Spring National Meeting.

    He also spoke with Best’s News Service about his desire to have private flood insurers compete against the National Flood Insurance Program and the talks between federal officials and the European Union toward a covered agreement.

    Q: You are involved in the search for NAIC chief executive officer. What’s the timeline look like and where is the process going?

    A: When I was president-elect, Terri Vaughan was CEO and submitted her resignation. We hired a head-hunter firm. We did it in about a four-month period of time. Sen. [Ben] Nelson’s been gone or announced to be leaving about that [length of time] now. The process has been slow. It has been focused on the skill set that would be sought with the refrain often repeated that what we’re looking for is a “Terri Nelson,” a combination of Terri Vaughan and Ben Nelson. I certainly get that. That would be wonderful. There probably isn’t one walking around out there, so we’re going to have to do the best we can.

    My effort today at the meeting, to implement a cooling-off period as it’s called, is for the purpose of enlarging the pool of potential candidates that we might get from outside of our ranks. Because if there’s a perception that it’s locked up for someone from within, then that will have a chilling effect on us finding a Terri Nelson, if there is one out there.

    Q: Tell us about what your proposal seeks to do. You spoke earlier about perception. Are there people around the table who want to be CEO? Can you name any of them? Is your proposal designed to avoid some conflict of interest appearance?

    A: No question about it. I was approached when we hired Sen. Nelson by colleagues in the ranks who were interested in applying for the job back then. I’ve heard, not been approached this time, of colleagues expressing interest in the position. The people that have been mentioned that have approached me are excellent regulators, quality people. But to your point of the perception of this being a fraternal organization looking out for each other, as opposed to trying to do the best job that we can on behalf of the people we protect as consumers and the companies we regulate the activities of, it really calls for – as Congress has done, as the state of Louisiana has done – a protection against such an inside preference for the membership when pursuing things like a $1 million a year contract.

    Q: Are you worried at all that people will say “This may have worked for you a few years ago. Why are you putting the brakes on it now?”

    A: It didn’t work for me. I never applied and always thought it would be a conflict for me to do so. My duty as a member of the board of directors of the NAIC, the executive committee, is to find the best person for the job, not to find the best job for me that’s possible. And I think it is a conflict of interest for someone to sit as a member and to at the same time pursue employment with that group. So, what I recommend that we do as Congress has done for the two-year cooling off period in place. My state has done it. If someone retires from my department, they can’t work for me for two years afterward, doing that line of work. It’s working in almost every other state and it’s for the purpose of maintaining public confidence in our system.

    Q: The NAIC is set to begin making some recommendations to reform the National Flood Insurance Program. As one of the states most concerned, what do want to see happen there?

    Two things I want to see. Number one, I want to see another reauthorization for five years. I can live with the reforms that had been put in place with the rollback of Biggert-Waters. I can live with what came out of that for another five [years]. While doing that, I am a big supporter of inviting the private sector to come in and compete with the National Flood Insurance Program for coverage. I think the best consumer protection available is competition. I always have. And this government program is $25 billion in the red. I don’t think it will ever be paid back. And that’s on them. That’s not my job. My job is to provide the most affordable coverage from solvent carriers who can deliver on their promises for the needs of my constituents. And I think the private sector is chomping at the bit to get into this arena and compete with the federal flood [program].

    I had a visit from a broker last year, representing a Lloyd’s product that is identical to the coverage in the National Flood Insurance Program. He said he’d been to commissioners all along the Atlantic Coast and all around the Gulf Coast and I was the first one that he could not categorically say that he could beat the price of the NFIP in every county – and in my case 60 of my 64 parishes – with his coverage on Lloyd’s paper. … He said, “I’m cheaper.” The problem is if he is cheaper and the public moves to that private sector, then that $25 billion is never going to be paid off and the feds will have to absorb that deficit.

    I was told today there’s talk on the Hill that they were talking about waiving that debt and walking away from it. They might as well. It’s either that, or forever ban the private sector from competing with them.

    Q: The Federal Reserve and the Federal Insurance Office are in the talks toward a covered agreement with the European Union. NAIC President John Huff has said the U.S. should get equivalency now and that a covered agreement isn’t necessary.

    A: He’s absolutely right.

    Q: Do you think anything will happen without a covered agreement? Is it a reality regardless of what we think here? Is there still some wiggle room there?

    I really don’t know. I don’t think anybody knows. The feds are pursuing a covered agreement in cooperation with their European colleagues. We’re not here to cooperate with European colleagues. We’re here to promote the best regulatory system in the world for insurance, not to compromise it and the market we regulate, by accommodating some other system that to my way of thinking is unproven.

    (By Thomas Harman, Washington Bureau manager, BestWeek: Tom.Harman@ambest.com)

    Originally Posted at AM Best on April 5, 2016 by Thomas Harman.

    Categories: Industry Articles
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