Wisconsin Insurance Commissioner Sean Dilweg
From tornadoes, hail and flooding to the impact of the AIG bailout and the federal versus state regulation debate, Sean Dilweg has a lot on his plate as Wisconsin’s insurance commissioner. Appointed by Wisconsin Governor Jim Doyle on Jan. 1, 2007, Commissioner Dilweg is approaching the end of his second year in office. Currently the office has a staff of 135. In addition to its regulatory duties, the agency administers the State Life Insurance Fund, Local Government Property Insurance Fund and the Injured Patients and Families Compensation Fund. Ken St. Onge, associate editor for Insurance Journal, caught up with Commissioner Dilweg at the Fall National Association of Insurance Commissioners’ meeting in Maryland. What follows is a candid discussion of key issues facing the insurance department and Dilweg in the Badger state.
IJ: I’d like to begin by talking a little bit about just the state of the property/casualty insurance market in Wisconsin.
Dilweg: In Wisconsin, we have a very competitive market, one of the most competitive in the nation, (in our personal lines area of homeowners and auto). And, our major players are really Allstate, American Family, and State Farm. I hate to say it, but as an example, look at the Minnesota bridge collapse. The companies I just mentioned were involved in covering the damage to autos and property during that disaster accounting for 70 percent of the market.
IJ: Give me a sense of the workers’ compensation market, as well, in the state. How does that look?
Dilweg: We really have one of the older, more progressive types of workers’ compensation councils that cooperate with our insurance department and also with our Workforce Development Department. Wisconsin has had very stable rates. They’ve gone down. I think this year there was a slight up-tick. However, we have not faced a notable workers’ compensation problem in the state of Wisconsin.
IJ: What do you see as the factors that make your market so stable in Wisconsin?
Dilweg: I think it’s the collaborative nature of our advisory council. The council is made up of labor as well as insurers. It’s also made up of hospital providers. And the council really works on the rates and works through the rates with our department and Workforce Development.
IJ: Talking about stability: What’s your perspective on the federal response to AIG, and do you think it was the right decision?
Dilweg: I don’t think they (federal government) had a choice. I am looking at in the larger economic environment and impact and how the credit rates were freezing up across all companies–be it GE, be it the auto companies. If they had not taken this action with AIG, which is such a large financial company, we would be witnessing the freezing of available credit liquidity in the market. So I don’t see where the feds had a choice on this.
IJ: Have you been in touch with any local insurers regarding solvency issues?
Dilweg: In the current market crisis, we’ve been dealing directly with our bond insurer, Ambac, and our mortgage insurer, MGIC. We’ve worked closely with how they’ve responded to the sub?prime market collapse. They have obvious ties into that collapse.
As far as other insurance companies, the situation goes back to the strength of state regulation. In the property/casualty world, these are strong companies. Since the savings and loan crisis of the late ’70s, there are a lot of standards in place in every state that don’t allow the investment in some of the risky capital areas that were involved in the sub-prime market.
Insurers also have the backstop of the state guaranty funds that provide the money to pay claims when a company becomes insolvent. So, in the end, under our current regulatory environment, you’re not asking for federal money to bail out these companies. It is insurance money from other companies in that state that bail out the companies that become insolvent.
Ken: How will the AIG bailout affect the debate over state regulation versus federal regulation?
Sean: I’ve seen both sides presented in the media. I think when we step back and look at why AIG has any value left, it’s because of effective state regulation. Just the idea that, prior to the bailout, we could have still moved $20 billion to help AIG’s liquidity on the financial side without damaging the policyholder and still protecting the policyholder shows how strong the insurance regulatory environment is.
Next, let’s examine what was causing the problem. I’ve looked at all of these banking instruments, the CDOs, the CDSes as I work through a lot of the issues surrounding Ambac, and these are instruments that were created under a very lax federal regulator. And they’re the cause of a lot of our problems today. And so I see the reality opposite of the pro optional federal charter people. I see it as this AIG situation is an argument for state-based regulation.
IJ: Why is that so important for your state, the state of Wisconsin?
Dilweg: With Wisconsin, we have a lot of mid-sized property/casualty insurance companies. And under an optional federal charter or some type of federal environment, you’re going to see a lot of the mid-sized companies struggling. You would see more nationalization of property/casualty companies. I think the life side been the strongest supporter in favor of an optional federal charter.
But in the property/casualty world, an optional federal charter or some type of federal oversight would be very problematic. Does Wisconsin want to get dragged into paying claims for Florida? And that’s an issue that we watch very closely. Under a federal regulator, you worry about how companies would be pulled in different directions.
IJ: How would that affect insurance agents?
Dilweg: Agents would have a much less responsive agency to deal with if federal oversight took over. Just as we’re on the ground every day for consumers in Wisconsin, we’re also dealing with 120, 000 registered agents in our state. And that’s something that we deal with very quickly and very effectively on any issues that come up before them.
IJ: Sean, a lot of companies have been floating the idea of a national catastrophe plan. I’m curious where you stand on the issue.
Dilweg: We have concerns about it too. It goes back to my earlier comment, that we don’t want our policyholders in Wisconsin having to pay for the decisions of local governments allowing people to build on the coast of a Florida or a Louisiana or eastern or western seaboards. It is a subsidation issue
So, I think we’re very concerned about the idea of a cat fund, pooling nationally for a cat fund. Really, all the Midwest states continue to push our concerns in relation to that, especially with our congressmen and senators.
IJ: Do you have any particular catastrophes that are most prone to Wisconsin?
Dilweg: For us, it’s hail and tornadoes. And we’ve missed the record-breaking tornadoes this year that you’ve seen a little farther south in Illinois, Indiana and Missouri. In the past four years, Wisconsin has had to handle as many as 800 or 900 tornadoes per year.
IJ: How about the hurricanes?
Dilweg: Hurricanes or wildfires of California are catastrophes we just don’t face.
IJ: Sean, how would you characterize your department’s relationship with insurance agents in the state?
Dilweg: Licensing an agent in Wisconsin is very important. You’re handing over the authority, via a license, to an agent to sell products. And they need to live up to that license. We don’t have a heavy hand about saying “this is exactly how you do something.” You are required to take the education classes to maintain your license. Having an agent’s license is a privilege.