Herb Denenberg Column for week of December 9, 2002.


Policyholders of Pennsylvania, unless you want to continue to get overcharged on your insurance policies and to get otherwise ripped off, start putting pressure on Governor-elect Rendell to break our state's habit of appointing a fox to guard the chickens. By that I mean it is about time the insurance commissioner isn't another insurance company executive, who goes to Harrisburg to curry favor with her past and future employers.


Take a look at the last two commissioners. Linda Kaiser worked for Reliance and Cigna, and her main achievement was a ruling in Cigna's favor when, in my opinion, she should have disqualified herself to avoid an appearance of conflict of interest. When she left the office of Commissioner, she went back to work for Reliance, which has since become one of the biggest property and casualty failure in history. In my opinion, every red flag was flying, but the insurance commissioners were sleeping while Reliance went a billion dollars in debt, costing the taxpayers and policyholders that amount.


Her successor and present occupant, Linda Koken, came out of Provident Mutual. Her main achievement was not ruling on Provident Mutual's request for demutualization. But she turned the matter over to someone else in her department, pretending all the time that he would be insulated from her influence. Just go ahead and make your boss unhappy, by displeasing her former employer, and perhaps also her future employer. Note the nice precedent set by Ms. Koken and others before her. This is the revolving door of insurance regulation, long lamented but rarely avoided. It is regulation of, by and for the insurance industry. It is so much apart of our system that most accept it without complaint.


So governor Rendell ought go outside of the insurance industry in designating an insurance commissioner. That means avoiding appointments from law firms that earn big bucks representing insurance companies and avoiding others with business ties to the industry. And beware of academics that pose as objective purveyors of truth, when in fact they are closely tied to industry. Many academics, especially in regulatory fields such as insurance and banking, are firmly tied to the industries they study with financial and other favors. For example, much of the support of so-called insurance professors comes from the insurance industry. In fact, follow the money stream to academics before believing in their objectivity.


Why not try a public interest lawyer who has experience looking at matters from a policyholder's point of view. How about a seasoned lawyer from a community legal services organization? How about a consumer advocate? Why not try almost anything but what has been the bad habit of decades past?


And that brings us to the second qualification for insurance commissioner - someone with the courage of their convictions and someone with enough experience and background in analyzing problems so as not to be deterred by the irrational objections of the insurance industry.


As insurance commissioner from 1971 to 1974, I instituted a series of sound, painfully obvious, sorely needed, long overdue, remarkably basic reforms. For example, I started putting out an extensive list of shoppers' guides to such subjects as auto insurance, homeowners insurance, life insurance, mobile home insurance, even hospitals, surgery and dentistry.


The insurance industry immediately complained that these guides would inevitably have obvious distortions that would make them unfair and unscientific. Industry lobbyists sounded almost rational, but their objections were pure hogwash. I soon learned the insurance industry opposed almost any regulatory move that might help the consumer. The guides went on to become popular not only in

Pennsylvania but across the country. Two book companies published collections of the guides, and they were widely reprinted across the country.


Another perfect example: I proposed regulations requiring insurance policies to be more readable by applying the widely known Flesch test of readability that took into account the length of sentences, the length of words, and other variables. The industry objected from beginning to end, but within a few years were featuring their more readable policies in their advertising. But my, did they object when the proposal was first made. You would have the impression that rewriting policies to be readable would disrupt and destroy all the legal

precedents and the insurance world would be thrown into chaos. This was more insurance industry hogwash on a reform that would benefit the industry as much as the public.


A final example. When I started denying rate increases on auto and homeowners, on the grounds they were unnecessary, company presidents streamed to my office hinting at or threatening to leave the state and seeing bankruptcy around the corner. None of the complainers left the state nor did they go bankrupt nor did they get rate increases they were not entitled to by law.


If I would have listened to the industry crybabies, I would not have been able to enact the above reforms (now considered conventional wisdom) and many others, and I would have been turned into a servant of the insurance industry rather than its regulator.


For too long, the insurance industry has regulated the insurance commissioner. We've had enough industry lapdogs; it's time for a watchdog. It's time we make it the other way around, and that starts with Governors, such as Ed Rendell, getting out of the habit of using insurance executives as commissioners, whose major accomplishment always turns out to their getting a better job in the industry when their term as commissioner ends.


My motto as insurance commissioner was "The consumer has been screwed long enough." I think we need another commissioner with that point of view. You can protect the interests of the insurance industry, without short-changing the policyholders and public.


(Herb Denenberg is a former Pennsylvania Insurance Commissioner and consumer advocate.)

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