State lawmakers are mulling legislation that would, among other things, raise premium taxes on insurance companies in Mississippi, an idea that state insurance commissioner George Dale says would backfire.
“I’m absolutely opposed to it,” said Dale. “Any time the state gets in a financial bind, some people suggest raising the premium tax on insurance companies. Currently, insurance companies pay a 3% premium tax to the general fund on all business written in the state, which generates about $97 million per year. It’s one of the leading producers of revenue to operate state government. We’re also one of the highest states in the nation for premium taxes.”
To raise the premium tax would create two problems: insurance companies would simply pass along the increase to consumers, and there would be a retaliatory effect for insurance companies, said Dale.
“For instance, Southern Farm Bureau Life Insurance Company is licensed in 11 states,” he explained. “If we raise premium taxes here for those companies domiciled in other states that do business here, those states are going to raise rates for Southern Farm Bureau Life Insurance Company. It’s automatic. So raising the premium tax to generate more money for state government could result in a company like Southern Farm Bureau Life Insurance Company paying several million dollars more in taxes in other states.”
Last month, Maine lawmakers facing a $750-million shortfall proposed a similar tax on insurance premiums, but earmarked the extra funds for retirement health insurance for police and firefighters.
“It’s still the same thing, raising premium taxes to help cover the budget shortfall,” said Dale.
NAIC launching online insurance fraud reporting
Last month, the National Association of Insurance Commissioners (NAIC) unveiled a national online insurance fraud reporting system now featured on the association’s Web site, which allows consumers to provide detailed information anonymously.
“The system allows consumers to report any alleged misconduct in violation of any insurance laws involving insurance companies or insurance agents,” said Dale. “We already have this system on a statewide basis, but the NAIC wants it to be available on a national basis. This is a reaction by the NAIC to the activity of New York Attorney General Eliot Spitzer, who recently settled a lawsuit against a large brokerage firm over bid rigging. Anytime something happens on the national level that questions the regulation of insurance, the NAIC has a tendency to overreact.”
On a state level, the most common fraudulent scenario reported anonymously involves insurance agents not passing along money to insurance companies, leaving individual consumers not realizing they do not have coverage until after a claim is made, said Dale.
“If proven to be a fact, we not only revoke the agent’s license, but we also turn the matter over to law enforcement because it’s a criminal case of fraud,” he explained. “We also require the insurance company to stand in the shoes of the agent and honor the claim. Right now, we’re working with a district attorney in South Mississippi on an agency where this very thing occurred. The agent was very prominent in the community but for some reason didn’t pass all the money along to the company. We found out about it, and that person has now been indicted on charges.”
The Mississippi Department of Insurance oversees approximately 1,800 insurance companies and about 36,000 insurance agents.
“On the national level, we already have available to us market conduct exams that we can do on insurance companies when we have reason to believe they’re not treating their customers properly,” he said. “We fined one company twice.”
NAIC’s interstate insurance product regulation compact
In 2003, the NAIC formed the Interstate Insurance Product Regulation Compact to streamline product-filing standards. Including 2005 state legislative activity, lawmakers have enacted the compact in nine states and have it under consideration in 22 others — but Mississippi is not among them.
“This compact came about because insurance has merged to some degree with finance, and many insurance agencies are now owned by banks,” explained Dale. “Ten years ago, it was against the law in Mississippi for me to grant a license to a person who was directly or indirectly involved with a financial institution. That law was struck down, and the chasm between insurance and finance has been removed.”
On a national level, banks answer to a national bank comptroller to move products to the marketplace. Insurance companies must go through 50 different insurance departments to do the same.
“It’s not fair for insurance companies to go through so many more steps, and some people are pushing for a national insurance comptroller,” said Dale. “The NAIC has implemented procedures to speed up that process, and the compact is one of them. However, it would take away the state regulation of insurance that exists today.”
The compact would allow an insurance company to submit an application to the compact, which would conduct due diligence on the company, and if approved, all states involved in the compact would sign off on it, said Dale.
“The downside of it for Mississippi is that our state has historically been extremely successful in keeping out those companies that, for many reasons, should not be licensed to do business here, and we have saved our consumers millions of dollars by not letting companies in that may barely meet the minimums,” said Dale. “If we give up that responsibility, we’re weakening our abilities to be very vigilant in protecting our consumers from those companies that we don’t think should do business in our state.”
For example, Louisiana-based Champion Insurance, which was licensed in several Southern states, filed bankruptcy and cost the taxpayers in those states millions of dollars, said Dale.
“We’re the only Southern state that did not let them do business in our state,” he said.
Legislation to adopt the compact is not under consideration by Mississippi lawmakers.
“I realize the overall problem, and I want to be a team player, but at the same time, I have a hard time giving up my authority to New York, California, Texas, Florida,” he said. “So we’re taking a wait-and-see attitude, to see that the bugs are worked out before we jump onboard.”
Contact MBJ contributing writer Lynne W. Jeter at firstname.lastname@example.org.