CPCU Society Looking at IMSA-Type Body

The property/casualty insurance industry’s leading educational society is weighing what role to play in helping the industry restore its image after months of charges about bid-rigging and contingent commissions.

A presidential task force of the Society of Chartered Property/casualty Underwriters is researching what if anything the CPCU Society should do. Among the questions it has been asked to weigh is whether a self-regulatory body like the Insurance Marketing Standards Association now operating in the life insurance industry would be a useful model for the property/casualty industry. It is also considering what role the CPCU organization should play in any industry image-restoration effort.

CPCU President Don Hurzeler had asked the task force to report in time for an April 14 board of directors meeting with recommendations on specific actions, he told Insurance Journal.

“We will look at the IMSA model,” Hurzeler said.

IMSA, formed in 1996, is a voluntary, nonprofit standards-setting organization for life insurers. Member companies are required to demonstrate commitment to high ethical marketplace standards by implementing certain policies and procedures. IMSA calls its seal “tangible proof that a company adheres to specific, stringent market conduct principles.”

Calling the current brokerage scandal a “wake-up call” for the property/casualty industry, Hurzeler urged the industry not to ignore it. “Let’s heed the call,” he said.

Hurzeler maintained that the industry is “horrified” by the illegal activity that has been uncovered. He said that it’s unrealistic to think there would never be criminal behavior but that organizations can catch it if they continually reinforce the importance of high standards. “You have to remember that you are talking to a parade, that people come and go, new people join,” he noted.

Hurzeler is noncommittal about whether IMSA is a good model for the property/casualty segment or what role his CPCU society might take on. But he is not uncertain about what the challenge is.

“Companies have to make sure that everyone understands what ethical behavior looks like. We have to clear up any lingering doubts about ethics. I believe that 99.9 percent of the industry is ethical but this event will require us to make sure that the message is clear. Companies will need to audit or monitor behavior.”

The CPCU Society has its own code of ethics, which it recently posted on its home page to draw more attention to it. Members can be-and in the past have been-expelled for violating the code but that hasn’t happened during this controversy because nobody charged in the various scandals thus far has been a CPCU member, as far as Hurzeler knows.

“We’ve been on kind of on high-alert but there have been no complaints or referrals about CPCU members,” he told IJ.

The CPCU code speaks about not aiding or abetting unethical actions but is silent on the specific question of whether contingent commissions are unethical, according to Hurzeler.

“In my view, it’s how they are handled,” he said, offering his personal opinion.

He acknowledged that if the CPCU Society decided they were unethical that view would have some influence in the industry.

While “anything can happen,” even rewriting the code of ethics, it’s too early to make such judgments, he believes. It’s not clear yet how widespread the problems are. “The play is only a third over and we should wait until all have had time to consider,” he said.

IMSA example

The person with a front row seat on how the life insurance industry handles matters of conduct thinks the property/casualty industry would be wise to at least look at his organization’s model.

“There is some real merit in at least considering it vis-à-vis federal intervention,” said Brian Atchinson, executive director of IMSA. “Maybe the solution need not be federal. Maybe the P&C industry could take more ownership of its best practices.”

Atchinson noted that IMSA came out of a similar set of problems a decade ago in the life insurance field. There were complaints over churning, misrepresentation and poor product performance. Lawsuits, fines and penalties grew while public confidence in life insurance and sales shrank. The industry faced a “severe perception problem” and the possibility of new federal regulation.

The life industry pulled together and in an historic move in 1996 agreed to develop a set of standards that would be enforced by a third party. It wasn’t easy to get IMSA working-it took two years after it was born to even agree on what the first set of standards should be-and it isn’t easy keeping it going, according to Atchinson.

Today it counts as members insurers writing more than two-thirds of all life insurance premiums in the U.S.

An organization like IMSA requires an ongoing commitment of effort and money as the marketplace and issues change. “It’s not just ‘add hot water and get instant standards,”‘ Atchinson said. “It’s a dynamic, ongoing process. It changes as the marketplace changes. It requires a commitment of resources and internal methodologies.”

Atchinson said the effort has been worth it. “At end of day, the life industry has been well served by raising the bar.”

Atchinson, a former state insurance superintendent in Maine, agrees with critics who contend that one of the biggest faults of state regulation is its failure to provide uniform standards for the industry.

“Everyone would be better off if there were uniformity,” he said, suggesting that federal government intervention is not necessarily the only way to achieve this, that a self-regulatory body might work.

There are benefits for individual members as well as for the industry. Some state regulators, recognizing that companies have to adhere to 177 different criteria to maintain their IMSA seal of approval, have been willing to give members credit in their market conduct exams for qualifying for IMSA membership. Some companies have found their IMSA credentials useful in their legal defense, arguing that their behavior conformed to industry high standards.

Also, as a result of the systems and procedures required of IMSA members, some insurers have been able to uncover and self-report problems before they got out of hand, according to the group.

Would IMSA have caught the questionable practices in the property/casualty arena before New York Attorney General Eliot Spitzer?

Atchinson can’t say for certain but he does believe that a case could be made. IMSA has regular workshops and meetings for people from all segments of companies, including technology and compliance professionals. It focuses on identifying bad practices, unusual events, outlier statistics, deviations from the norm. A group like IMSA helps bring clarity to areas where there is ambiguity.

“This brings together the best minds on ethics and you discover that what you thought was the right way is not the right or best way after all,” he explained, adding, “A rising tide raises all boats.”

Atchinson said IMSA has been approached by “leading players in the P&C industry,” although he would not divulge names. A new IMSA would cost money “but not as much as the fines and penalties or participation in the litigation lottery” that the industry might face otherwise, he suggests.

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