By David M. Eppstein
Director of State Affairs
PIA National

We all learned early on in the most basic civics classes that legislatures deliberate and ultimately establish public policy in the United States, whether on the state or national level.  The executive branch then enforces the policy set by the legislature and the courts interpret the laws.  Therefore, the authority to determine insurance policy is exclusively within the domain of legislatures.  Thankfully, this power still remains largely in state legislatures, but Congress also has the authority to determine insurance policy in a few limited areas.  This delineation of power and authority is so basic to our form of government that it should hardly seem necessary to have to go over it again, much less explain this concept to some of our nations’ top government officials.

Settlement Process Wrongly Setting Policy

As all of us are aware, the ability of PIA members to earn contingent compensation has come under attack by a handful of overzealous state Attorneys General and insurance commissioners attempting to use settlements with a handful of mega-brokers and carriers to dictate the method of compensation for all independent agents. In addition, agents are being forced to use disclosure forms that are confusing to consumers and both factually and legally inaccurate.  These forms may place agents in legal jeopardy.  This situation poses a grave threat to Main Street agents, who are being unfairly penalized as the result of alleged abuses by a few individuals who worked for a few big firms in another sector of our industry.

All of these actions, whether it is the determination of how and when an agent is compensated or the question of when or if it is necessary to disclose any information regarding an insurance transaction, are already clearly expressed in the various states’ laws.  Any changes or additions to current law are important considerations to be made by STATE LEGISLATURES.  These are complex issues that require a period of deliberation, hearings, and opportunity for notice and comment by interested and affected parties.  These are things that rightly take place in open proceedings in legislatures.  Using the settlement process to formulate and implement public policy, whether it is “good” public policy that we agree with or, as in this case, “bad” public policy that takes away the rights of honest, law-abiding citizens, is a dangerous precedent that we can not allow to go unchecked. 

Illegal Abuse of Authority

If the President of the United States one day decided to dictate insurance policy changes nationwide, he would rightly be derided as overstepping his authority. If the top government official cannot effect such policy changes, why then is it even being suggested that a few state Attorneys General have such power?  The fact is they do not. 

State Attorneys General have never had, nor should they have, extraterritorial power to enforce their state laws without consent and they have never had public policymaking authority in their home state, much less any other state.  The 10th amendment not only guarantees state sovereignty with respect to the federal government, but also provides states with protection from other states’ attempts to impose their policies beyond their borders absent express permission to do so. 

Proper Public Policymaking

We currently have a process for states to get together and implement uniform public policy.  State compacts have been used with great success to provide a mechanism for achieving a uniform, reciprocal process for regulating and enforcing a variety of policy measures. PIA has long been an advocate of state compacts to achieve insurance uniformity goals.  However, if the borders of states and the power of state legislatures can be trampled on through the settlement process, then why would we need state compacts?  

We support regulators and law enforcement officials in their effort to protect consumers and punish criminals who take advantage of unsuspecting victims.  We think they would be even more effective in this role if they would concentrate on their duly authorized duties and leave the public policy formulation to legislators. Legal settlements, when properly entered into, save taxpayers money while accomplishing the goal of punishing wrongdoers and, in many cases, compensating victims.  We support the settlement process generally for such purposes.  We cannot, however, allow regulators and law enforcement authorities to use settlements with suspected criminals as a means to alter well-established laws, regulations, and procedures nationwide. 

We all know that the insurance industry is geographically diverse and our state-based system of insurance regulation is used to dealing with this diversity.  When a few states or the federal government attempt to impose a one-size-fits-all mandate on our industry, those differences create more than mere nuisances, they create legal and regulatory chaos. 

NCOIL Resolution

PIA is working with state legislators to highlight this issue and point out that their authority is being diminished through this settlement process.  We are working on a model resolution for NCOIL’s consideration at their spring meeting.  The resolution lays out in no uncertain terms that legislatures alone have this policymaking authority and attempts to circumvent this process will not be tolerated.  Once approved by NCOIL, we will work with individual legislators to get the resolution introduced and eventually passed in their state.  This will then send a strong message to other government officials that the authority to implement public policy in the insurance marketplace, or any other matters, rests in the capable hands of our elected representatives.

State legislators can never forget that the fundamental reason for insurance regulation — the whole system — is predicated on one single premise: consumer protection.  This is, and should be, the single driving force behind every policy decision.  Legislators who are directly and frequently accountable to these consumers are in the best position to decide what is best for their constituents.  They have been doing a great job so far as evidenced by the healthy insurance marketplace we enjoy today, in fact, the best in the world. Let’s let our legislators keep making these decisions we’ve entrusted to them.

David M. Eppstein davidep@pianet.org is Director of State Affairs for PIA National.

This article originally appeared in the February 2007 PIA Connection.