Washington Needs an Appointed Insurance Commissioner
November 1999
Insurance is one of the major financial service industries in our state. Each year the people of Washington spend more than $10 billion on insurance of all kinds to protect their homes, families and businesses from unforeseen disaster. It is also one of the most heavily regulated industries in the state. As a senior state official, the Insurance Commissioner is entrusted with enforcing the state’s insurance laws and protecting the public interest.
At present the Insurance Commissioner is chosen by direct election. Yet given the current state of the health insurance market -- about 30 insurers have left the state in recent years -- there is a debate about whether this is the most effective way to structure our state government. In fact, some argue that in its current form the office is no more than a political stepping stone to higher elected office.
Since no incumbent will be running for Insurance Commissioner once the current term expires in January 2001, now is the time for the people of Washington to ask: Would it be better to protect the Office of Insurance Commissioner from political elections by making it an appointed position?
This Policy Brief will look at how insurance is regulated by other states and will lay out the advantages consumers would gain if our Governor had direct authority to appoint the Insurance Commissioner.
The urgent need to reform insurance regulation is no longer in doubt. The only question is how to institute meaningful reform that improves choice for consumers, without causing further damage to the marketplace. An appointed Commissioner would alleviate the public controversy that has grown up around the office in recent years. It would also increase the accountability of the Governor to the people and would take campaign money out of the process of selecting the Commissioner.
At present the Insurance Commissioner is chosen by direct election. Yet for many years there has been a debate about whether this is the most effective way to structure our state government. One viewpoint holds that the best approach involves voters using the "long ballot" to institute the greatest amount of direct democracy by requiring election of a large number of high-level state officials, including Insurance Commissioner. Others argue that a "short ballot" approach is superior because the people choose a limited number of top officials, who are then held uniquely responsible for the proper functioning of government. Proponents of this view say elected officials are then subject to greater public scrutiny because there are fewer of them. In the area of insurance, all agree that the state must regulate this vital industry in a way that serves the best interests of consumers.
Since no incumbent will be running for Insurance Commissioner once the current term expires in January 2001, now is the time for the people of Washington to ask: How can the chief insurance regulator be made most responsive to the people and fulfill the basic mission of government, without becoming entangled in special interest politics? Would it be better to protect the Office of Insurance Commissioner from the vagaries of elections? Can we achieve greater accountability and effectiveness by treating insurance like other financial businesses, which are regulated by appointed officials?
This Policy Brief will examine these questions, first by reviewing the duties of the Insurance Commissioner, next by comparing the oversight of insurance to the way similar businesses are regulated and by describing how Florida instituted major insurance regulation reform. The Policy Brief will then look at how insurance regulators are chosen in other states and finally, will weigh the advantages consumers in Washington would gain if the Governor had direct authority to appoint the Insurance Commissioner.
The work of the Insurance Commissioner is clearly an essential part of our state government. A high-level official has been assigned to oversee the state’s insurance industry since the state was founded in 1889. Reflecting the primary concern for the fiscal soundness of the industry, responsibility for enforcing the state’s insurance laws was initially assigned to the Treasurer, one of the elected officers provided for in the constitution. Five successive Treasurers performed this function over the first eighteen years of Washington’s history.
In 1907 the legislature created the Office of the Insurance Commissioner as a separate, directly-elected position in state government. Since then seven commissioners, three Republicans and four Democrats, have held the office.
The term of office for Insurance Commissioner is four years. To be eligible a candidate must be 18 years old, a citizen of the United States and a resident of Washington. There are no other qualifications for the office. Experience or knowledge of the insurance industry is not required. Once elected, the commissioner must post a $25,000 bond, subject to approval by the Treasurer and the Attorney General, which is "conditioned on the faithful performance of the duties of his office."
The current office holder, Deborah Senn, was first elected to the position in 1992 and was re-elected in 1996. She has indicated she does not intend to seek election to a third term, and has announced a campaign for the U.S. Senate instead.
The powers of the Insurance Commissioner’s office over the industry it regulates are sweeping. The law empowers the Commissioner to regulate "all insurance and insurance transactions in this state," and "all persons having to do therewith."
"Insurance" is defined in the law as any "contract whereby one undertakes to indemnify another or pay a specified amount upon determinable contingencies." "Insurers" are defined as, "every person engaged in business of making contracts of insurance, other than a fraternal benefit society."
The insurance industry is a risk-sharing activity by which many policyholders band together, through their insurance company, to share certain defined risks of loss. In a basic example: a homeowner buys fire insurance and pays premiums even though the likelihood that his house will burn down is very small. Why then incur the expense? In the unlikely event that his home is destroyed, the loss will more than he can financially bear. It makes sense for the homeowner to accept a manageable expense each year for insurance in order to avoid a catastrophic loss if he is struck by fire.
This sounds simple. But the risk-sharing arrangement only works if the insurance company holding the policy is still in business when the homeowner makes a claim, and if the company will honestly pay out for a valid claim. This poses both the financial soundness and the consumer protection issues that the Insurance Commissioner must oversee.
Virtually anything can be the subject of insurance. Policies are written to insure valuables as diverse and unusual as rare art work, prize show horses, a singer’s voice, a surgeon’s hands or an outdoor event against bad weather, provided that the insured and the insurer agree on a premium that fairly underwrites the risk of loss. Policies to cover unusual risks can be provided by "non-admitted insurers," companies not registered in the state but which are allowed to serve the "surplus market." Lloyds of London is the most notable example of such a company. In short, consumers in Washington can buy an insurance policy to cover a wide range of risks, if they are willing to pay for it.
In all cases the premium charged must be calculated against the specific risk insured against, a concept familiar to all who purchase automobile insurance and notice that better rates are available to drivers with good records than to those who frequently are in accidents. Proper underwriting of the risk of loss -- that is, matching the level of risk to the amount of the premium -- is essential to the health of the insurance industry.
Given the way insurance works, the Commissioner’s duties fall into four main areas: assuring the financial soundness of insurance providers, protecting the consumer, ancillary powers, and the staff and budget needed to carry out these responsibilities. These are described briefly in the following sections.
A. Assuring Financial Soundness
The Insurance Commissioner is responsible for regulating the financial well-being of the 1,350 insurance companies, Health Maintenance Organizations (HMOs) and Health Care Service Contracts that are active in Washington’s insurance market. About fifty of these are "domestic" insurers with their headquarters in Washington state, while the rest are based outside the state. Domestic insurers must be examined by the commissioner’s office at least once every five years.
The Commissioner promulgates rules that cover the sale and services of policies sold to provide all types of life, health, auto, home and other property, casualty and marine insurance.
To insure financial soundness, the Insurance Commissioner regulates the premiums that may be charged: not necessarily to keep the price low, but rather to insure that the premiums are sufficient to cover the risk. In the early, unregulated days of the insurance industry, some unscrupulous companies would compete by charging lower prices than the risk required, but because they accumulated inadequate reserves, they were unable to pay claims when losses occurred. Sound underwriting -- the assessment of the specific risk assumed by an insurance policy and determining the premium appropriate for it -- is a difficult task. Ensuring financial soundness also means making sure each company retains adequate reserves, and invests them prudently. To enforce this requirement the Insurance Commissioner audits each domestic company at least once every five years.
Insurers must receive permission from the government before they can change the price of their products. This responsibility falls to the Insurance Commissioner. If insurance rates are too high, consumers pay more than they should for their policies. But if rates are too low, consumer choice suffers as responsible insurers withdraw from unprofitable lines of business, as is now occurring in the individual health insurance market. As an example of the volume of rate requests involved, the Commissioner’s office handled 27,322 new rate filings in 1996.
B. Providing Consumer Protection
The Commissioner is also responsible for overseeing and enforcing the state’s licensing laws. These laws protect consumers against insurance fraud by making sure licensees are trained and knowledgeable in their profession. Licensing also certifies that insurance agents are able to stand behind the products they sell, so consumers can rely on their expert guidance and advice when buying a policy.
The Commissioner’s staff monitored the testing, continuing education and professional standards of 48,599 licensees in 1996, the latest year for which figures are available. The great majority of insurance licenses, over 46,000, are issued to individual agents. The remainder are issued to insurance brokers, general agents, public adjusters, independent adjusters and solicitors.
The Insurance Commissioner is on hand to hear and address consumer complaints when individuals feel that their insurance company is not honoring their claims. In addition, the Attorney General has substantial consumer protection powers, which provide one more assurance to consumers that the regulations will be enforced.
C. Ancillary Powers
Along with the basic responsibilities of the office come the ancillary powers the Insurance Commissioner needs to carry out these duties. The Commissioner is authorized to make any "reasonable rules and regulations" to put the insurance code into effect. The Commissioner can also conduct investigations, audits and hearings to "determine whether any person has violated any provision of the [insurance] code." The law bars the Commissioner, however, from making any rules that affect the way the Insurance Commissioner is selected, paid or qualifies for office.
The Commissioner can also issue cease and desist orders, bring action against an insurance company in state court, or enlist the Attorney General or one of several prosecuting attorneys across the state to bring legal action against potential lawbreakers.
As part of this enforcement work the office’s Division of Consumer Advocacy and Outreach, which runs a consumer hotline, handled 8,620 complaints in 1996. A further 558 more serious cases were initiated by the Division of Investigation and Enforcement. As a result of these inquiries, the Commissioner imposed 82 disciplinary actions in 1996, ranging from a fine of $250, to revoking an agent’s license, to levying a $700,000 penalty as part of a multi-state settlement against Prudential Insurance Company.
Enforcement also includes taking over an insurance plan that is failing. That happened recently when the Insurance Commissioner applied for and received permission from a Thurtson County Superior Court judge to take over all management operations of Kitsap Physicians Service, a health care plan operating in five counties and serving 78,000 subscribers.
The takeover was prompted by ongoing financial problems and the inability of the plan to maintain the level of cash reserves required by law. The plan’s top managers have been fired, and if its finances cannot be repaired it will be liquidated. That’s exactly what happened to another troubled health plan, Unified Physicians of Washington, with 43,000 enrollees, which had earlier been placed in receivership by the Commissioner.
D. Miscellaneous Duties, Staff Size and Budget
Other duties of the Commissioner include publishing tables showing average life expectancy in the state, distributing information about Washington’s insurance laws, providing assistance to consumers about the cost and availability of different insurance products, and helping to resolve disputes between customers and insurance companies or other licensees. The Commissioner’s office is also required to issue an annual report. The latest one available is for 1997.
The 1999-2000 biennium budget for the Office of Insurance Commissioner provides 170.4 full time equivalent employees, which is a 3.7% increase over prior staffing levels, and an operating budget of $26.3 million, a 9.5% increase over the 1997- 1999 budget. All of these operating funds are collected by the Insurance Commissioner’s office through fees imposed on the businesses it regulates. In addition, the Commissioner collects a tax on the premiums customers pay for their policies. This tax brings in more than $100 million a year and is deposited in the General Fund to be spent by the legislature for general government programs.
The Insurance Commissioner is one of nine elected officials in Washington, who together make up the top management of the executive branch of government. These officials are listed below.
Washington State Elected Officials
All of these offices except Insurance Commissioner are established by the state constitution. The Insurance Commissioner is also the only one where the legislature, not the constitution, has established the elective nature of the office.
The constitution empowers the legislature to change the way some of these officials are selected. It states, "The legislature may in its discretion abolish the offices of the lieutenant governor, auditor and commissioner of public lands." Since the work of these offices is essential for the smooth operation of the government, the legislature would have to provide that these duties be carried out by appointed officials. The constitution therefore recognizes the principle that from time to time the legislature may alter fundamentally the structure of the executive branch.
In contrast to the nine elected positions, all other senior officials in the executive branch are appointed by the Governor. They make up the Governor’s cabinet and include many important positions:
State Officials Appointed by the Governor:
In many ways the duties and responsibilities of these appointed officials are similar to those of the Insurance Commissioner. In the two following sections we will examine in detail how two such regulators, those covering financial institutions and the real estate market, effectively carry out duties much like those performed by the Insurance Commissioner. Both of these business sectors, like insurance, are vital to the economic growth of our state and to the daily lives of its citizens. Yet only insurance is regulated through a politically-elected office. Other regulators are appointed by and are responsible to the Governor and he in turn is directly answerable to the people for the smooth operation of their offices.
A. Regulating the Financial Services Market
1. Assuring Financial Soundness
Like insurance, the most important task of banking regulators is to assure the financial soundness of each institution. Thus, just as it is vital that insurance companies be financially capable of paying out claims as needed, it is equally essential that banks, credit unions, and savings and loan associations permit customers to make withdrawals from their accounts at any time. The specter of the frantic runs on banks that occurred in the economic panic of the early 1930s still haunts financial regulators, as well it should.
The financial services market is comparable in size to that of the insurance industry. The Director of Financial Institutions, oversees the safety and soundness of 78 commercial banks, savings banks and savings and loans, which together hold total assets worth more than $53.3 billion.
2. Protecting the Consumer
In addition, the Director works to protect the consumer by enforcing banking regulations and by forwarding cases of fraud and abuse to state prosecutors as needed. The Division also handles more routine problems, usually by contacting the institution involved directly to resolve complaints from customers. In 1998 the Division of Banks handled 181 consumer complaints, although it does not keep track of all consumer inquiries, as the Insurance Commissioner’s office does.
3. Ancillary Powers, Staff Size and Budget
In order to assure financial stability, the Director of Financial Institutions, like the Insurance Commissioner, requires regular reporting from all regulated institutions. The law provides for fiscal examinations at least every eighteen months, or more often if necessary. It is the responsibility of the Director to monitor the financial stability of each company and to require corrective action, improved management or the insertion of new capital as needed.
To accomplish its work the state’s Division of Banks is assigned the equivalent of 121 full time staff positions and a budget of about $10 million per biennium. Banking rules, staff and oversight, like those for insurance, are all funded by fees levied on the regulated institutions.
Over the years oversight by an appointed official of this important sector of the state’s economy has worked well; both the banking industry and the public are satisfied with the effectiveness of the government’s role. Since 1934 there have been only nineteen bank or savings and loan failures in the state, the most recent being the Emerald City Bank in Seattle, which closed its doors on July 2nd, 1993.
B. Regulating the Real Estate Market
Washington’s real estate market is regulated by the State Real Estate Commission, which is part of the Department of Licensing. The Commission has six members appointed by the Governor and is chaired by the head of the Department of Licensing, also an appointed position. The Commission oversees a market considerably larger than the one for insurance. In 1998 it comprised over $32.4 billion involved in 277,600 commercial and residential transactions, including the sale of 113,100 existing homes. The resulting taxable sales netted over $415 million for state coffers through the Real Estate Excise Tax.
1. Protecting the Consumer
The Commission is responsible for enforcing rules that govern 26,209 active license holders, and a further 16,667 people who hold inactive licenses which they maintain by paying a bi-annual fee to the state. The licensing rules assure consumers that real estate professionals are tested, experienced and qualified to serve their client’s needs. The Commissioner receives 60 to 65 written complaints each month and handles an additional 100-plus phone complaints, although only a few of these require a formal investigation.
2. Ancillary Powers, Staff Size and Budget
The Commission imposes rules that require full disclosure to buyers about a property’s condition, and it can deny licenses to unscrupulous or dishonest operators. To do its work the Commission maintains 45 full time equivalent staff and has an operating budget for the current biennium of $7.4 million.
Like banking, oversight of real estate regulation by appointed officials is working well. Washington boasts a robust housing market with thriving competition among brokers, agents and other real estate professionals.
There are many more examples of where government oversight is being quietly and competently carried out every day by appointed officials. These two agencies serve to show that major sectors of the Washington economy, which are just as central to the lives of ordinary citizens as is insurance, are being successfully regulated by appointed office-holders working under the direct authority of the Governor. The Insurance Commissioner is unique in being the only elected state official who performs the functions of a regulator, but whose office is not authorized in the constitution.
Among the fifty states it is rare to have as many state elected officials as Washington. Only four states elect a greater number of officials: Connecticut (22), Delaware (13), North Dakota (11) and North Carolina (10). One state, South Carolina, has the same number of state elected officials as Washington. Forty-four states have fewer than Washington.
Some states, such as Maine and New Hampshire, elect only one state-level official, the Governor. Six to eight is the most common number of elected officials for the majority of states. For example, the neighboring states of Idaho and Oregon elect just eight and six of their top office-holders respectively.
Not only does Washington fill more state offices by direct popular election than most other states, it is one of only eleven states that choose the Insurance Commissioner by this method. The other states which elect their Insurance Commissioner are California, Delaware, Georgia, Kansas, Louisiana, Mississippi, Montana, North Carolina, North Dakota and Oklahoma.
In the 39 states with appointed Insurance Commissioners, the system for regulating the insurance industry works well. These states have thriving, diversified insurance markets that offer consumers a wide range of products at competitive prices. For example, Oregon reports having a competitive market in which "consumers have several choices, carriers have several competitors, and companies are responsive to both customers and the regulators."
As appointed, rather than elected officials, insurance regulators in these state are insulated from the incessant pressures of everyday politics. They are relieved of the need to raise re-election funds, to maintain a campaign organization, or to hire political consultants and advisors. They are not beholden to campaign donors or to special interests that provide them funding. In short, they do not have to invest all the time and energy needed to run for elective office.
As Oregon’s insurance regulator puts it, "the professional insurance regulatory staff and the appointed director of the department (who is also the insurance commissioner) are more insulated by virtue of their appointed or civil service status from inappropriate pressure by interest groups or regulated entities." As an appointee such a Commissioner is "not subject to the self-imposed pressure that many elected commissioners appear to be under to keep their name in the public eye constantly and be perceived as a crusader or champion of certain issues."
Yet these officials are accountable for their service to the public. They can be dismissed at any time by their Governor for poor performance in office, a fact that in some ways makes them more answerable for their actions than Insurance Commissioners who can be removed only at election time. All these factors contribute to the success appointed officials have had in regulating insurance in other states.
Recognizing that success, the voters of one state recently shifted the responsibility for regulating insurance from an elected to an appointed official. The people of Florida recently adopted a constitutional reform plan with the primary goal of creating greater effectiveness and accountability in the executive branch of their state government.
The idea was endorsed by a broad bipartisan coalition, which included the League of Women Voters, Common Cause, then-Insurance Commissioner Bill Nelson, a Democrat, and the state comptroller, Republican Bob Milligan. As in Washington, the Insurance Commissioner’s office was soon to be vacant, leaving the position open for appointment by the governor. As Bill Nelson put it, "The stars are in the right place if you’re ever going to do this."
The package of reforms was recommended by the Florida Constitution Revision Commission, a 37-member advisory body made up of former judges, attorneys and other citizens that convenes every twenty years to present ways to improve the structure of state government.
The Revision Commission traveled the state for a year seeking views and suggestions from the people of Florida. The Commission reviewed more than 500 ideas and after extensive consideration pared these down to 33 specific proposals to put before the voters. The Commission’s goal was to recommend a series of basic reforms that would fundamentally change the way the government does business.
The final proposal asked the people to trim the number of elected cabinet positions from seven to four. A key provision of the plan provided for moving oversight of Florida’s insurance industry from an elected to an appointed official, a newly-created Chief Financial Officer. In this case changing the status of the Insurance Commissioner required a constitutional amendment.
The primary aim of the constitutional changes was to strengthen the state’s creaky cabinet structure. Commission Chairman Dexter Douglass called the system, "antiquated and ineffective." He described the proposal to create an appointed Insurance Commissioner as a necessary part of the effort to "bring Florida’s executive branch into the 21st century." He said the proposed reform "answers the call for less government with more accountability."
Florida voters agreed. On November 3, 1998 the ballot question on "Restructuring the State Cabinet" garnered almost two million votes, passing by 55.5%.
Florida is not the only state that has considered improving oversight of the insurance industry by creating an appointed regulator. Problems with the way insurance is regulated in this state have already come to the attention of some members of the legislature. As part of the solution, Senator Alex Deccio (R-Yakima) has introduced a bill, Senate Bill 6114, to change the office of Insurance Commissioner from an elected to an appointed position.
The language of Senator Deccio’s proposal is simple. It strikes the phrase, "elected at the time and in the manner that other state officers are elected" from the law authorizing the office of Insurance Commissioner and replaces it with the words, "appointed by the governor, with the consent of the senate." The effective date of the bill is January 2001, when the term of the current Commissioner expires.
The following sections of the bill make the necessary conforming changes in the law by adding "Office of the Insurance Commissioner" to the list of executive departments, and the title "Insurance Commissioner" to the list of executive officers appointed by the governor.
Because the Office of Insurance Commissioner was created by ordinary legislation in the first place, a bill passed by the legislature and signed by the Governor is all that is needed to make the change. It is not necessary to amend the state constitution.
A broad bipartisan coalition introduced SB 6114 during the 1999 special session. It was then referred to the Senate Committee on State and Local Government. While it came too late for any other action to be taken, it will be available for further consideration when the legislature starts its new session in January. The measure has eleven cosponsors.
In explaining the need for his bill Senator Deccio points to the concern over incumbents using the elected position of Insurance Commissioner to seeking higher office. "The office has become a vehicle whereby it is used to step up to higher office," he says, "We should make it like other departments of the government, like [the Department of] Agriculture or the Department of Social and Health Services, and put it under the auspices of the Governor."
In Senator Deccio’s view the primary advantage of creating an appointed Insurance Commissioner is to increase the efficiency of government and improve service to the public. "The pressure would then come from the Governor and the legislature for the performance of that office, rather than using the office for purposes for which it wasn’t intended, that is, to reach higher office."
The current Insurance Commissioner disagrees. She points out that a direct connection with the people makes an elected representative most responsive to the people’s interests. Shortly after Senator Deccio’s bill was introduced, Commissioner Senn stated, "Having the Insurance Commissioner directly accountable to voters is the best way to make sure the citizens of this state are getting the protection they deserve."
The same reasoning was used to oppose a similar proposal that was introduced in a previous legislative session by Senator Jim West (R-Spokane). Commissioner Senn called it "an attempt to thwart the will of the people," a salient point at the time because the voters had elected the new Commissioner just two months before. That earlier proposal died in the legislature. Overturning a recent election is no longer a concern, however, since the bill now before the legislature would not take effect until the current term has ended.
As in Florida, the strongest incentive for changing the way the Insurance Commissioner is selected is that it will build more effectiveness and greater accountability into the way insurance is regulated. Today, Washington’s Insurance Commissioner is autonomous of the Governor. In practice the Commissioner can lobby the legislature independently, and even work against what the Governor is trying to accomplish.
Any such conflict is resolved in those parts of government that are administered by appointees. If a policy disagreement arises among cabinet officers, the Governor can settle it by formulating a single, unified policy for his administration. This point was cited by the Director of Oregon’s Insurance Division regarding the effectiveness of insurance regulation in that state: "In our view, there is no less accountability with an appointed commissioner, and there is actually the likelihood of greater policy congruency with the governor’s agenda and with overall state goals."
Similarly, if the legislature is unable to reach agreement with a cabinet official over important legislation that affects his department, the dispute can be taken "over his head" to the Governor. The Governor may or may not agree with the position his cabinet appointee has taken, but at least the legislature will get a final answer. The legislature knows that through the Governor, the executive branch will speak with one voice.
The reason this works is that the Governor has direct authority over the performance of the officials he has appointed. They serve at his pleasure and are answerable to him. He in turn must report to the voters for the overall performance of his administration.
A. Direct Authority Gives the Governor the Power to Act
The importance of the direct authority of the Governor was dramatically illustrated this spring by an incident involving the Department of Social and Health Service (DSHS). This agency faced a major public crisis in late May 1999 when newspapers across the state reported that a disabled Everett woman under DSHS supervision had been for years severely abused and neglected. Concerned citizens wanted to know just what had happened, who was responsible and what steps were being taken to insure that it didn’t happen again. The public demanded answers, followed by an effective solution.
The initial response of DSHS Secretary Lyle Quasim was to defend the actions of his department. He wrote an guest opinion piece for The Seattle Times, in which he said the newspaper had misrepresented his earlier statements and had "glossed over" DSHS’ efforts to help the woman.
His explanation was never published. In a perhaps unprecedented example of executive muscle-flexing, Governor Gary Locke stepped in and asked the newspaper not to print the secretary’s article. The Governor instead provided a written explanation of his own for the newspaper to publish. According to news reports, "the two men’s views of the state’s responsibility couldn’t be more different."
In contrast to the defensive posture adopted by his cabinet officer, the Governor’s view of the case was that, "The system failed. People failed. Officials failed." Because Secretary Quasim was an appointed official, the Governor was in a position to insure that his position was the final word on the issue.
As a result, the public got straight answers and DSHS, from the secretary on down, got the policy direction it needed to set the situation right. Within days the Governor issued a four-point directive and announced the formation of a task force to improve how the agency carries out its mission.
The firm and decisive action on the part of the Governor would not have been possible if Mr. Quasim had held an independently-elected office. At best the public would have been treated to an ineffectual, simmering dispute between two high-level elected officials. The Governor would have had little choice but to remain on the sidelines while the agency head took his own course. If that had happened, the disagreement over future policy at DSHS would not have been resolved as quickly and as effectively as it was in this case. Instead, this episode shows how the Governor’s position of supremacy over his appointees gives him the authority to act.
B. Direct Authority Creates Accountability to the People
Direct authority over an appointed Insurance Commissioner would strengthen the accountability of the Governor to the people. When a candidate runs on a promise of making insurance more affordable, and extending coverage to more low-income people, there would be a system in place to test the effectiveness of the Governor’s time in office.
Under the current system, the Governor has little or no control over insurance policy, rates, legal mandates, or regulations. In this policy area he must defer to the independently-elected Commissioner, who may be more interested in securing re-election than in carrying out the Governor’s program. Today the Governor cannot be held responsible for the failings, nor can he take credit for the successes, in this area of regulation.
C. Direct Authority Takes Campaign Money Out of the Process
A major advantage of changing the office of Insurance Commissioner from an elected to an appointed position is it would take campaign money out of the selection process. In the 1996 primary, seven candidates appeared on the ballot for Insurance Commissioner, and three of these went on to contest the general election.
The winner, Deborah Senn, received 55% of the vote, with the next closest challenger, Anthony Lowe, receiving 42%. The seven candidates combined spent $797,815 in campaign contributions on the race, with the winner outspending her closest rival by almost two-to-one. It turned out to be one of the most expensive races in the 1996 cycle. The winner spent more in campaign funds than any of the candidates for Treasurer, Secretary of State, Commissioner of Public Lands, Auditor or Attorney General; only the campaigns for Governor and Superintendent of Public Instruction were more expensive.
But perhaps the greater significance is not the amount of money the election cost, but the shift in focus. As voters often remark, elected officials seem to spend the bulk of their time running for re-election. No sooner has an officer been sworn in than he or she starts thinking about the next campaign. This can affect performance in office, as some officials become increasingly concerned about getting "good press and lots of it." The tendency creates the temptation to maintain a "continuing campaign," as has happened with some officeholders at the national level.
D. Direct Authority Insures Skilled People Are Appointed
As described earlier, there are no formal qualifications for Insurance Commissioner beyond those required to be a registered Washington voter. By using his appointment powers, the Governor’s direct authority would ensure that the person selected would have the skill, training and expertise needed to carry out effectively the duties of Insurance Commissioner.
One example is the resume of the appointed director of the Department of Financial Institutions, John L. Bley, who has a strong background in the banking industry. Prior to receiving this appointment, he served as the state’s Supervisor of Banking, and before that he worked at major Seattle law firm specializing in commercial banking.
The same is true of the other comparable area of state regulation that this paper examines. Those appointed to oversee the real estate market have specific training and qualifications in that field. By law, members of the Real Estate Commission must have at least five years of experience in the sale, operation, or management of real estate in Washington before they can be considered for appointment by the Governor.
E. Direct Election Has Not Created Greatest Accountability
In practice, direct election of the Insurance Commissioner has proven less effective in creating accountability in office than might at first be supposed. The down-ballot offices tend to receive less attention from the public than the major national races for President, the U.S. Senate or the House of Representatives. Even at the state level, the race for Governor is the major focus of each four-year election cycle. In this rarefied political climate, issues involving the regulation of insurance and the health of the market, which are often highly technical, simply get lost in the general flurry of larger campaigns, an effect which only intensifies as election day draws near.
Elections best hold officeholders accountable when there is a true contest at each election. In races for the Insurance Commissioner’s office, however, neither rotation in office or vigorous elections have been the rule. Of the 24 elections held since 1907, only three have resulted in a sitting Insurance Commissioner being forced from office by the voters; more than 87% of the time the incumbent was either re-elected or retired voluntarily. Similarly, in the 92 years of its existence, party control of the Insurance Commissioner’s office has changed hands only three times, a marked contrast to the Governor’s office, which over the same period has changed party control eleven times.
In the past, the strongest opposition to changing the way a candidate is chosen to fill a particular office is usually the current holder of that office. For this reason the announced plans of the Commissioner to vacate the office at the end of her present term provide a unique opportunity to reform the office of Insurance Commissioner without engaging in disputes among politicians.
F. Restoring Public Confidence
Perhaps the most significant advantage of an appointed Commissioner would be to alleviate the public controversy and distrust that has grown up around the office in recent years.
As we have seen, some argue that in its current form the office is no more than a political stepping stone to higher elected office. The Insurance Commissioner has been accused of "bashing" the industry under her regulatory authority and of creating an enforcement climate that’s "good for re-election, not good for consumers." In this view the effort to ascend to another elected office focuses energy away from the Insurance Commissioner’s core mission and undermines the full effectiveness of the office.
Also, some have criticized past Insurance Commissioners for being place-holders who were too subservient to the industry that was being regulated. It is just as harmful to public confidence for an Insurance Commissioner to be inactive as to be overly interventionist.
For these reasons, the Governor, as chief executive of the state, ought to be the place where the ultimate accountability to the public resides. Creating an appointed Insurance Commissioner would move the office out of the political realm and add it to the list of over 200 offices, boards and commissions the Governor fills by appointment during his term.
The urgent need to change the way insurance is regulated in Washington is no longer in doubt. The only question is how to institute meaningful, effective reform that improves access and choice for consumers, without causing further unintended complications in the marketplace.
The position of Insurance Commissioner will soon be vacant. As in Florida, this circumstance offers a rare opportunity to reform the way this important state official is chosen without becoming involved in personalities. Whether insurance regulation reform includes shifting the office of Insurance Commissioner to the control of the Governor, or whether it continues as an independently-elected office, is something the people and their representatives in Olympia will have to decide.
About the Author
Click here to read more about the author Paul Guppy.
Brian Amsbary and Shanna Follansbee served as research assistants for this study as part of the Foundation's Internship Program. Their research work and overall contributions are greatly appreciated.