Gubernatorial Hopefuls in New York: Spitzer vs. Weld

Part 1: Weld’s Insurance Record

New York voters face the prospect of a race for governor next year between Democrat Eliot Spitzer, the state’s anti-corruption crusader and high-profile attorney general, and Republican William Weld, an energetic and enigmatic native New Yorker who served as governor of Massachusetts from 1991 until 1997.

While Spitzer appears to have a lock on the Democratic nomination, Weld is likely to face competition from fellow Republicans and Conservative Party hopefuls. Assemblyman Patrick Manning of Fishkill has said he is running. Assemblyman John Faso and Randy Daniels, a former CBS News correspondent who recently resigned as New York’s secretary of state, are also considering getting into the race. It is not known what billionaire businessman B. Thomas Golisano, who has run for governor unsuccessfully as an Independent will do.

New York political veterans are quick to note that no Republican has won statewide office without the backing of the Conservative Party since 1974, when Jacob Javits was elected to the U.S. Senate. These veterans question whether Weld, known for his liberal positions on social issues to go along with his conservative fiscal and regulatory policies, could win the Conservative Party nod.

Yet the lack of a key endorsement has not fazed Weld in the past. When he first ran for governor and won in 1990 in Massachusetts, he did so without his state Republican Party’s endorsement. Also, Weld is getting an early jump on the competition and has plenty of personal money to funnel into a campaign.

Thus while it is very early, a Weld-Spitzer contest has to be considered a real possibility when voters go to the polls more than a year from now to select a new governor. This possibility has raised interest among insurance executives and agents as to what insurance politics and regulation in the Empire State might look like if either man is elected.

Hands-off’ manager
Massachusetts insurance insiders recall that as governor William Weld was a “hands-off” manager on insurance issues. Ed Donahue, now with the Boston law firm of Ferriter, Scobbo, Caruso & Rudophele, represented the insurers belonging to the Alliance of American Insurers during much of the Weld era. Donahue agreed with those who described Weld as a “hands-off” manager. “He was not real active overseeing the Division of Insurance,” he noted, adding that Weld succeeded Dukakis, a politician who was always very involved in insurance issues.

But because he was on the sidelines does not mean Weld’s administration was without insurance achievements and controversies.

Weld’s tenure as governor in the Bay State from 1991 to 1997 was marked by four major insurance issues: the controversial relocation of Electric Mutual Liability Insurance Co., a General Electric subsidiary, to Bermuda; the precedent-setting demutualization of State Mutual Life; a dramatic turnaround in workers’ compensation, and modest competition in the state-controlled private passenger auto insurance system.

However, as important as these issues were in setting the grooves in Weld’s insurance record, even more key was the role played by Linda Ruthardt, Weld’s choice for insurance commissioner and a regulator whose style even more than her regulations confounded many.

On assuming office, Weld faced a House and Senate controlled by Democrats but he also was lucky in some respects. Weld took office in 1991 as a tax hike from his predecessor Dukakis went into effect and as a 1988 auto insurance reform law began to bear fruit. These developments helped place the Weld Administration in a position to cut taxes and slash auto insurance rates for the next several years. Donahue suggested that Weld was “a fortunate guy” coming into office when he did.

Workers’ comp wonder
Donahue and many in the industry consider the complete turnaround in the workers’ compensation system to be the greatest insurance achievement during Weld’s governorship in Massachusetts.

The Democratic legislature passed a strong workers’ compensation reform measure and Weld signed it into law shortly after taking office in early 1991. The legislation aimed to cut costs by reducing benefits, streamlining claims administration and introducing incentives for workplace safety plans. By most accounts, it worked spectacularly. Following a 6.24 percent increase in January 1993, workers’ compensation rates fell by double digits in each of the next four years: 10.2 percent in January 1994, 16.5 percent in January 1995, 12.2 percent in May 1996 and 21.1 percent in February 1998.

The voluntary market for coverage returned, the assigned risk plan was depopulated, case backlogs were reduced and workers’ compensation news faded from the front pages.

“Before the reforms, the market was bad. There was a significant amount of business in the assigned risk pool. It was just like the auto market is now. The workers’ comp reforms brought more business into the voluntary market and there was some actual competition,” said Frank Mancini, who heads the state’s independent insurance agents’ association, the Massachusetts Association of Insurance Agents.

Private passenger politics
Auto insurance is a perennial political issue in the Commonwealth. A number of lobbyists commented that the auto insurance system was in rather good shape during his terms, although they stopped short of giving him all the credit.

“Weld was governor during a period when the auto system was the best it has been in recent memory,” noted Mancini, who had his differences with the administration over auto issues.

Among other things, the 1988 auto insurance reforms cut costs by adjusting the no-fault threshold and emphasizing fraud fighting. Under the system in which the commissioner sets uniform rates for all insurers, Ruthardt went on to approve popular auto rate cuts every year from 1993 to 1997.

Weld did not achieve any major changes in the auto system but his administration is remembered for reviving some semblance of competition, largely through liberal approval of discounts for affinity and employer-based groups. Ruthardt encouraged discounts for members of groups ranging from patrons of a Cape Cod library and employees of Raytheon to members of the American Automobile Association and educators at various schools, despite arguments by agents and some consumer groups that discounts should be related to driving record rather than membership in a group.

“She let group marketing run wild,” Mancini, a critic of her approach, said.

Since rates were going down, the auto system appeared fine on the surface. But while his administration was lowering premiums, it was allowing problems plaguing the residual market, known as Commonwealth Automobile Reinsurers, to fester.

Massachusetts has witnessed an exodus of national insurers from its auto insurance market for years, long before either Ruthardt or Weld came on the scene. In 1988, right before reforms were enacted and a study of the high risk system ordered, Fireman’s Fund, General Accident and Peerless all left. Allstate evacuated in 1989 and St. Paul, among others, in 1990.

During the Weld years, insurers continued to head for the hills. In 1991, Chubb, Cigna, Foremost, Royal and Home split; Aetna, PW Group, USF&G, Utica National left in 1992. Within four years, AIG and Nationwide had departed as well.

While some insurers departed for reasons unrelated to the state’s regulatory system, a number criticized the state’s residual market and the “insider” politics of the system on their way out.

Ruthardt and Weld preferred to let the insurers that controlled the high risk reinsurer CAR resolve problems on their own. “She often reminded insurers that they were in the business of taking risks,” Donahue said.

That stance tended to favor local interests over national or outsiders’ concerns, especially when it came to how the big residual market deficit was shared.

Ruthardt entered the fray to the extent she approved a rule change that made the exit of insurers more orderly and helped to preserve other business. The new rule essentially allowed an insurer to buy its way out of the auto market without having to surrender its licenses to write other lines.

But these same issues of insurer withdrawals and fairness in high risk sharing that were raised back in 1988 continue to swirl today and have consumed much of the administration of Ruthardt’s successor, Julianne Bowler.

Ruthardt erratic-ism
According to several who served in his administration, Weld agreed with those who saw the Massachusetts insurance industry as an “insiders’ game” in which it was tough for outsiders to score points. Hoping to upset this dynamic, Weld turned to candidates for his state insurance commissioner from outside the state. After his first choice for commissioner, Texan Kay Doughty, resigned as head of the Division of Insurance in 1993 under an ethics cloud, he settled on Ruthardt, a former risk manager for Raytheon and the Girl Scouts of America.

Many in the industry who dealt with her and others within the division itself readily describe Ruthardt as “quirky” and “erratic” in her behavior. Donahue said she kept an open door for insurers. However, the discussions could be head-scratching. Ruthardt was known for her unusual language, often referring to parties as “good bunnies” and “bad bunnies” and once referring to independent agents as “bastards.”

Agent animosity
Ruthardt’s past as a risk manager apparently soured her on independent agents with whom she regularly clashed over auto insurance commissions and group discounts. Agents had to take her to court at one point.

Mancini recalls the first time Ruthardt spoke before members of his influential agents’ group. In her opening remarks she told the independent businesspeople, “You will all be out of business in 15 years.”

Mancini said that while agents could gain access to speak with Weld, Ruthardt represented an obstacle. “Her administration of the division was erratic at best,” he said. “She did not have an open door for agents. She felt that independent agents did not add anything to the insurance transaction and would fade from the landscape. She was proven wrong, of course.”

At one point, the Weld Administration got involved in allowing automobile dealers to handle car registrations under a program known as DRIVE. Agents fought to be included in DRIVE as a service to their insureds but were repeatedly rebuffed by Weld’s registrar. Several years later, under a new governor and registrar, agents finally gained access to the program.

“That was a real battle,” Mancini said.

Despite the battles, Mancini thinks Weld ran a “fair” administration overall. “Weld didn’t make significant changes. He was sort of a ‘hands-off’ guy,” Mancini said.

Behind closed doors
In addition to the criticism that she shut her door to agents, Ruthardt was also the target of those who contended she was too willing to work behind closed doors with individual insurers.

In 1995, Emlico, or Electric Mutual Liability Insurance Co., came to Ruthardt seeking permission to relocate to Bermuda. Ruthardt held a brief hearing before approving the move. State law said that an insurance company could relocate to another state, which Ruthardt interpreted to include Bermuda. Within 45 days of its move, the insurer declared bankruptcy. That elicited howls from reinsurers and others that Ruthardt should have known about the company’s near-bankrupt status and its $2 billion in environmental liabilities that it could now escape in Bermuda.

There were allegations that Ruthardt let Weld insiders friendly to GE pressure her into approving the Emlico deal and even the state high court later found that she acted “inappropriately” in approving the move. The Weld Administration repeatedly denied that insiders influenced the Emlico process.

Demutual feelings
Allegations of secret dealings were also heard when in 1995 Ruthardt gave her nod to a plan allowing State Mutual Life Assurance, a Worcester-based mutual insurer, to transform itself into a stockholder-owned company known as Allmerica Financial Corp. The case was watched closely because it was the first under the state’s new demutualization statute and observers wanted to see how smaller policyholders fared.

Ruthardt invited controversy in the demutualization episode, not so much because of the plan she approved but because she refused to release key documents sought by outside watchdogs until the courts forced her to make them available.

She also got in some hot water for approving, without a public hearing, a plan by Premier Insurance Co. to introduce managed care into the state’s auto insurance coverage. She later withdrew her approval.

According to those contacted for this story, judging from his performance in the Bay State, most of Weld’s insurance issues would likely be dictated by whomever he taps to run his insurance department.

“I would say as long as things are generally stable, Weld is going to leave it up to his regulator. If there is a major problem like workers’ comp was, he will jump in,” Mancini predicted.

As for Weld’s choice to be New York’s insurance superintendent if he is elected, the incumbent, Howard Mills, a former Orange County assemblyman named to the post by Gov. George Pataki last year, would likely be in the running to retain his job. Weld contributed $2,000 to his campaign when Mills ran against Charles Schumer for the U.S. Senate.

Next: Part 2- Spitzer’s Indications