The Commissioners: Jim Poolman
Poolman says regulatory modernization, agent licensing are priorities
Currently serving in his second term as North Dakota Insurance Commissioner, Jim Poolman has focused his efforts on working for and protecting insurance consumers across the state. He served eight years in the North Dakota House of Representatives and believes his relationship with the legislature is still strong and helps him in his role as commissioner. This year Poolman is pushing for regulatory modernization by supporting a flex rating system for personal and commercial lines insurance and is targeting agent licensing issues through the Interstate Compact.
He discussed all his priorities in a recent interview with Andrea Ortega Wells during a National Association of Insurance Commissioners’ national meeting.
Can you tell us about the regulatory modernization bill that will be introduced in the North Dakota legislature this year?
Poolman: Yes. We will be introducing a comprehensive package for property and casualty insurance to modernize the regulatory environment, both on the commercial and personal lines side. Our goal is to move away from the prior approval system of rates in the area of commercial insurance, but still maintain the use of prior approval for the forms.
On the personal line side, our goal is to introduce a flex system. In other words, companies would only have to get prior approval of rates specifically when they are above a certain level. Currently our bill says 5 percent is the level, but I think we will end up a little higher than that. We think this change will make North Dakota a more competitive state in which to do business.
We have a good competitive marketplace, both on the homeowners, auto and on the commercial side of the business. Some of the lines will be deemed noncompetitive up front, such as medical malpractice. But overall we think this regulatory change will benefit the consumer in the end by making our marketplace more competitive.
Are you hoping that the regulatory change will attract more insurers to your state?
Poolman: Right. The goal of the whole program is to make the marketplace more competitive. In some rural areas of North Dakota specifically, we sometimes lack certain markets, (especially for independent agents who are looking for companies to write with). We believe that changing the way we regulate will allow more competitors to come in, more independent agents to get more contracts with those companies, and therefore allow us to better serve our rural areas.
Is the market more in need of commercial lines competition or personal?
Poolman: Well, we’ve had a pretty tough homeowners market in the past several years. North Dakota is susceptible to wind and hail storms. In 2001, shortly after I first became insurance commissioner, we had a very large hailstorm with about a quarter of a billion dollars worth of damage. In a large state, that’s probably not a huge number, but in a state like North Dakota, it was significant. We had some market shakeup after that occurrence. As a state we actually have a pretty competitive marketplace, but we are always looking for more competitors in the homeowners area specifically.
Commissioner Poolman you served eight years in the North Dakota House of Representatives. Does this bill have a chance of passing?
Poolman: I believe we’ve got a very good shot at passing the legislation, because I think we are able to articulate a message about how this legislation is going to still protect consumers. From prior approval, the way that companies are setting their rates now with the amount of credits you can take for good risks and those types of things, we’re really just trying to put into the law much of what’s in practice right now. And so, we just think by changing the structure, we can articulate to the legislature the benefit for consumers, both for commercial customers and personal alliance customers. I’ve got a very good relationship with the legislature and they are always looking for ways to better serve their constituents. I think passing this law is one of them.
A CLUE report bill passed a few years ago. Can you tell me how that has impacted the market?
Poolman: Yes. One of the things that I was out in front on two years ago was trying to bring some common sense to underwriting of homeowners insurance. Working very closely with the agents, and with the realtors in North Dakota, we really wanted to put some restrictions on what information could be used in underwriting a policy.
Consumers often don’t know that the loss information on their home and property follows them from place to place. Even if consumers call their insurers about an inquiry for coverage, or an inquiry about a claim — that phone inquiry can count against them. Another example is that even a claim that was made — but the company never wrote a check to the consumer because they decided to pay the claim themselves–can be counted as a claim. We wanted to bring some common sense to the underwriting practices of companies. Insurance companies were upset and opposed the bill. However, we got the proposal through the legislature with only 11 votes against it. Many companies thought the sky was going to fall. Actually the opposite has been true. We have been very successful in maintaining a competitive environment, rates haven’t increased because of the bill, and consumers are better protected.
On to another issue: agent licensing. I know that you sit as a board member on the National Insurance Registry. How has agent licensing issues evolved in your state?
Poolman: I do sit on the National Insurance Producer Registry (NIPR)and I chair the Producer Licensing Working Group, which I think is one of the most important committees at the National Association of Insurance Commissioners (NAIC). Our goal is to make agent licensing as seamless as possible across state lines, not only in North Dakota, but nationally. We want to set uniform standards for producers to get licensed across state lines and then leverage the technology that we have through the NIPR to be able to license agents and then use the same technology to allow them to renew their licenses as well. We also want the technology to work for the states that track appointments. All of these parts of the program are incredibly important for agents, but also incredibly import for companies to make sure that the system is seamless and efficient as possible.
In North Dakota we’re looking at a couple of pieces of legislation to bring North Dakota along in meeting the uniform standards that we’re setting at the NAIC.
We’ve worked hand-in-glove with our independent agents at home, because of course, both independent and nonindependent agents want a uniform system of licensing. The last thing agents want, I believe, is to have the federal government take over the licensing of insurance agents.
Can you share your thoughts on the viability of a federal charter system for regulatory modernization efforts?
Poolman:In my opinion, it is the larger life insurance companies that are driving the train for an optional federal charter. In a way, I sympathize with them on this issue. An annuity or term life insurance product that is sold in North Dakota is really no different than it is in any other state, whether it is California, Texas.
Things are a lot different on the property and casualty side because our markets are so homogeneous. In the North Dakota marketplace, a homeowners policy is far different and the risks are different than they are in the Gulf Coast states. So I don’t think the optional federal charter argument plays as well.
But on the life side, I sympathize with the argument that the marketplace is becoming more global and the competition for life insurance companies to get to that marketplace is becoming increasingly more competitive.
So the question is: what are we doing to prevent an optional federal charter from happening, and what are we doing to modernize our own system of state regulation? We’ll be introducing in North Dakota the Interstate Compact Bill in the next legislative session.
What is your position on the issue of agent compensation disclosure in light of the settlement with Zurich and others?
Poolman: That’s a really good question. One of the things we’re concerned about specifically with the Zurich settlement is, are we really ‘legislating’ through this settlement? In other words, are you getting all of the brokers and the agents that do business with one particular company to agree that they’re not going to accept contingent commissions? Or, are these pacts going to require disclosure pieces in the agreement that aren’t necessarily under North Dakota state law? We continue to look at those agreements very carefully to be sure that they’re within North Dakota law, and to make sure that they’re allowing agents to continue to function in an environment in our state that allows them to be competitive.
Do you think contingent compensations should be allowed?
Poolman: Interestingly enough, I do. In my state, especially in a rural area, contingent commissions allow agents to do some underwriting upfront. Interestingly enough, if you go to an average rural agency in North Dakota — and actually if you compare them, probably most agencies in North Dakota would be considered rural compared to some of the megaagencies that are out across the country — those agencies survive on contingent commissions. They’re making sure that the business that they bring in is good for the companies to make sure that they can survive out in the marketplace.
When you focus on the large brokerage deals, it can be a different story. Everything that Elliot Spitzer found as the attorney general of New York was related to bid rigging and was already illegal. It wasn’t necessarily the contingent commission piece of that scenario that was illegal. It was the bid rigging. Of course, we would be opposed to bid rigging in our marketplace, but I think that normal contingent commissions in the average agent marketplace is not a bad thing and actually keeps jobs in our marketplace.
The complete video interview with Commissioner Poolman is available at www.insurancejournal.com/broadcast.