Outside influences: state elections may bring fresh faces to the NAIC and impact insurers on a range of issues from reforming "judicial hellholes" to abolishing state insurance funds.

November elections bring the potential for changes at the top in 10 state insurance departments, but how much change will happen is about as certain as undecided voters.

Five insurance commissioner contests offer the possibility for new members to the National Association of Insurance Commissioners' fraternity.

Delaware will definitely have a new head of its insurance department, as current Insurance Commissioner Donna Lee Williams decided not to seek another four-year term. Montana, North Carolina, North Dakota and Washington state have insurance commissioners seeking re-election.

Governors in Indiana, Missouri, New Hampshire, Utah, Vermont and West Virginia appoint the insurance commissioner, and all have gubernatorial races, adding to the chances for more new NAIC members, although the commissioner in New Hampshire would not be immediately affected.

Other elections for seats in state legislatures and on state Supreme Courts, as well as voter referendum questions and attorney general races around the country, also have the attention of the insurance industry, because they too can affect the landscape of state insurance regulation.

Generally, the industry prefers dealing with the Insurance commissioner they know, to the one they don t. "There is some comfort in the incumbents because they are a known quantity. We've had differences with some, but overall they're reasonable people," said David Reddick, a state affairs manager with the National Association of Mutual Insurance Cos.

With few exceptions, industry spokespersons will not go on record endorsing insurance commissioner candidates or stating a preference in a race. That sort of statement appearing in print could come back to haunt them if the commissioner candidate they didn't want ends up victorious.

But they will say they favor candidates, no matter the office, who are pro-business and support allowing competitive market forces to regulate industry pricing, rather than exerting tight controls. A candidate can be proconsumer, as long as market-based philosophies are part of the package.

Taking the Option

Insurance industry lobbyists note, however, in states where the governor appoints the commissioner, if the appointee is doing a good job, it's not unheard of for a new governor, even one from another party, to retain the current commissioner.

Former South Carolina Insurance Director and NAIC president Ernst Csiszar is an example. Originally appointed by a Democratic governor, he was retained when a new Republican governor took office this year. Gov. Mark Sanford noted Csiszar's principles were consistent with the Sanford administration's. Csiszar recently left that post to assume command of the Property Casualty Insurers Association of America. While grateful for being asked by Sanford to stay, Csiszar noted "it didn't have to be that way."

Some will contend that if there are changes in the insurance commissioner post as a result of a new governor, it's more a case of the person wanting his or her own people in place, rather than partisan politics. Former Director of the Division of Insurance in the Illinois Department of Financial and Professional Regulation Nat Shapo said he felt that was the case when he was replaced in January 2003.

A Republican, Shapo was appointed by a Republican governor in January 1999. When Illinois elected a Democrat for governor in 2002, Shapo said he attributed his replacement to a natural transition as a result of a new governor wanting to bring in his own team to run the state and its agencies. "I don't consider that, at its crux, to be a partisan issue, but a natural result of the democratic process," he said.

Shapo, a partner in the Chicago law office of Sonnenschein Nath and Rosenthal, said he didn't have a tough time in the insurance department dung those months between the November 2002 election and when his replacement took over in January. For example, he said he didn't feel as if his authority was undermined.

But he said he did feel a sense of awkwardness when it came to his duties at the NAIC, where he was secretary-treasurer in 2002. "It was unclear if I was going to be able to continue as an officer. I did the best I could with it. I made sure my fellow commissioners understood there was a new governor and a change in party and there was a good chance I wouldn't be coming back," Shapo said. "Everyone seemed to understand that."

The NAIC holds its election of officers in December, and generally the officers move up one spot. Shapo was elected vice president at the December 2002 meeting, only to resign a month later. More awkwardness came with having some important work that he had to leave unfinished. Shapo was heavily involved with the International Commission on Holocaust Era Insurance Claims, and felt that he had to go just as he was making significant headway in negotiations with European insurers.

No Room for Politics

Midterm changes in NMC officers can be difficult, but they're not the kind that threaten the organization or what it's trying to accomplish, Shapo said. "The NAIC is extraordinarily nonpartisan. I think a lot of commissioners are not even sure of the others' party affiliation. Any differences on issues are based on their views, not whether there's a'D' or'R' next to their name."

Former North Dakota Insurance Commissioner Glenn Pomeroy agrees the NAIC is not a partisan place. "You would think it would break along party lines, but that doesn't really happen. When commissioners focus on the core business, they realize it's not really a partisan deal. They have to make sure consumers are protected, companies are financially sound, products are sold properly and consumers have adequate choice in the marketplace."

Having gone through successful insurance commissioner campaigns in 1992 and 1996, Pomeroy said he also sees a lack of partisanship in those elections. "Insurance commissioner races don't tend to get highly partisan. It's more a contest between two people who present themselves as one who wants to protect consumers and it becomes a contest to see who can sell that the best," said Pomeroy, currently vice president and associate general counsel for government affairs with GE Insurance Solutions, formerly GE Employers Reinsurance Corp.

State Legislature Races

More than 78% of the 7,382 seats in the nation's state legislatures are up for grabs this year. In 25 chambers, a shift of just three seats could alter party control. In other cases, tied chambers could shift over one party line, according to the National Conference of State Legislatures.

There are 44 states with some legislative elections, with the exceptions being Alabama, Louisiana, Maryland, Mississippi, New Jersey and Virginia. There are no regular state Senate elections in Michigan and Minnesota, NCSL noted.

"Clearly there are some key legislative races, depending on the outcome, that could influence how easy or difficult it is to promote insurance-related legislation in 2005," said NAMIC's Reddick.

These contests could be influenced by what happens in the presidential race, said John Lobert, a PCI senior vice president. "Look at the U.S. Congress; you have a vast group of people in the middle. You see the same thing in the states. You have die-hard Republicans and Democrats and a whole bunch of people in the middle."

Legislative races are of particular interest in states where one party has a slim majority. It's not about elephants and donkeys as much as it's about relationships. This affects industry lobbyists when it comes to dealing with the chairs of state legislative committees that have insurance in their jurisdiction. The party that has the most members chairs the committees.

"A lobbyist's main job, besides tracking legislation and advocating for a client, is to do this based on relationships with leadership in the legislature, mostly a committee chairman. Anytime you have a change of parties, those relationships go out the window and now you have to start new ones with different people," Lobert said. Maybe eight to 10 state legislatures could see a change in party leadership after the elections.

Insurance lobbyists say the notion that Republicans are pro-business and Democrats are not as business friendly, isn't as clear as it may have once been. "We tend to favor legislatures that have a pro-business perspective," said Reddick. "For every Republican legislature that's been helpful, there have been Democratic legislatures equally as helpful. I don't know that one party is stronger than the other in this regard anymore. You have to look at each state's unique situation."

Louisiana is an example. Bills to lessen controls on insurance pricing were passed by a Democrat-controlled Legislature, signed by a Democratic governor and pushed by an elected insurance commissioner who is a Democrat. "You would normally think the Democrats are not likely to do that," Reddick said. "But they know they needed to improve their insurance environment and attract more companies. Clearly that was their motivation."

"Florida is a difficult state Legislature, and that's considered a Republican state," Reddick added.

Attorney General Races

The industry has had a lot of interaction with state attorneys general on a number of issues ranging from tort reform to interstate compacts, said Bruce Ferguson, a senior vice president with the American Council of Life Insurers. The NAIC has touted the use of an interstate compact for modernizing insurance regulation, and some attorneys general have questioned the constitutionality of using an interstate compact to delegate authority over insurance rate and form approval not listed in a state's constitution.

In Washington state, former Insurance Commissioner Deborah Senn's campaign for attorney general caused concern for the industry. "When Senn was commissioner, she was very anti-industry in her approach," Ferguson said. "We understand Mike Kreidler is interested in the interstate compact, so if we have an anti-industry attorney general in place, it could compromise the ability to get that done next year in Washington state."

Pennsylvania, Indiana and West Virginia also have attorney general races that the industry will be watching, Ferguson said.

Voter Referendums

Voters will decide ballot initiatives throughout the United States, but the ones of great interest to the industry deal with tort reform.

Oregon has an initiative dealing with limiting noneconomic damages in medical-malpractice lawsuits, and another that would abolish the State Accident Insurance Fund beginning Jan. 1. SAIF is the public corporation that sells workers' compensation insurance to and administers workers' compensation insurance for the state and other public and private entities and administers the Industrial Accident Fund for that purpose.

"There's a long-running battle the state insurance fund has with the private market," Lobert said. "It was set up to be a 'last resort' insurer, but is now the largest insurer in the state. It has accumulated tax-free money, and it can undercut prices in the private market."

Along with the industry outcry, Oregon is looking for money for its state budget, and the state insurance fund has a large surplus, Lobert said. "The Oregon Legislature wants to get its hands on this money for schools, law enforcement and other things."

Nevada ballot questions include attorneys' "Keep our Doctors in Nevada," which would limit attorney's fees and noneconomic damages in medical-malpractice lawsuits to $350,000, eliminate joint and several liability for health-care providers, and revise the statute of limitations for the filing of actions.

The Insurance Rate Reduction and Reform Act is viewed by the industry as a counter to the previous ballot question because it would void any limits on medical-malpractice awards unless the insurance industry lowers medical-malpractice premiums.

This ballot question would create a new article of the Nevada Constitution requiring a 20% rollback of casualty insurance premiums charged on Dec. 1, 2005, and that insurers justify future rate increases. Insurers would also be subject to all laws applicable generally to other Nevada businesses, including consumer protection and antitrust, and motor vehicle insurers would be required to provide a 20% good driver discount. The governor would appoint the insurance commissioner, who is currently appointed by the director of the department of business and industry.

A third question, "Stop Frivolous Lawsuits and Protect Your Legal Rights Act," would penalize lawyers who are willfully involved in frivolous litigation in Nevada.

Wyoming residents will vote on whether to amend the state constitution to allow caps on medical-malpractice lawsuits.

Key Points

* Fall elections bring the potential for new commissioners in 10 U.S. insurance departments.

* With 78% of the nation's state legislature seats up for grabs, industry lobbyists could face a new political landscape in January.

* The outcomes of Supreme Court races in Ohio, Mississippi, New Mexico and Illinois are vital to the insurance industry's tort-reform efforts.

Commissioner Races

Delaware: State Rep. David Ennis faced no challenge for the Republican nomination in the primary, while Matt Denn, former counsel to current Gov. Ruth Ann Minner, captured the Democratic Party's nod.

Industry lobbyists are familiar with Ennis and view his experience as a plus. A 24-year state Legislature veteran, he's spent some of that time chairing its banking and insurance committee. Years back, he oversaw an investigation of the insurance department.

North Dakota: Insurance Commissioner Jim Poolman faces a modest challenge in his re-election bid, said Brenda O'Connor, vice president of public affairs with the American Insurance Association. "He's a very reasonable person, and he would probably say he favors a market-based approach to regulation, as opposed to a command-and-control style some states use."

Poolman faces Democrat Terry Barnes, an auto glass shop owner and race car driver. Among the accomplishments Poolman cites on his campaign Web site are privacy standards he says are "among the very toughest in the nation," legislation to help stabilize long-term-care insurance premium rates and to provide consumers recourse in the event of substantial rate increases, and restrictions on how insurers may use credit reports in the underwriting process.

Montana: The state auditor regulates insurance in Montana, and Democrat John Morrison is seeking his second four-year term. His challenger is Republican State Sen. Duane Grimes, a former state representative and businessman.

On Morrison's campaign Web site, he notes he proposed legislation, passed in 2003, that makes it easier for small businesses to form purchasing pools to buy health insurance at lower rates. He also says he'll propose legislation to restrict the use of credit scoring by insurance companies.

Washington: Mike Kreidler is expected to win his first re-election bid as insurance commissioner. "He has worked hard to revitalize the professional staff," said Bruce Ferguson, a senior vice president with the American Council of Life Insurers.

Three Republican

candidates competed in the Sept. 14 primary race for a chance to run against Kreidler--Earl C. Dennis, an insurance agent; John Adams, an insurance firm owner, and Curtis Facklder, an independent insurance agent and business owner. Stephen Steele, a manager of a software company, also ran as the Libertarian Party's candidate for insurance commissioner.

Kreidler notes on his campaign Web site that he won passage of "the nation's strongest protection against the unfair use of credit history for insurance purposes"; forced reductions of insurance company-requested rate increases that he deemed excessive, saving consumers more than $63 million, and forced health insurers to provide equal coverage to women for contraceptives.

North Carolina: Jim Long is a veteran of insurance commissioner races--this is his sixth. But lobbyists note he has more competition than in past races. Republican C. Robert Brawley, unlike Long's 2000 opponent, is better known and qualified. Brawley is no stranger to the industry. He's a former state representative who served on the House insurance committee for 16 years, has a Chartered Life Underwriter designation and is a past president of the Iredell (N.C.) Association of the National Association of Insurance and Financial Advisors.

Supreme Court races

Several states have Supreme Court races that are vital to the insurance industry's efforts to bring about greater balance and predictability in tort law. These races often fall under the radar screen of voters, who are focused on gubernatorial and national races, but how the state Supreme Court interprets laws is very important, said David Reddick, a state affairs manager with the National

Association of Mutual Insurance Cos. Supporting judges who do not view themselves as superlegislators is part of the industry's battle against "regulation through litigation," said former Illinois insurance director Nat Shapo, a partner in the Chicago law office of Sonnenschein Nath and Rosenthal.

Illinois and Mississippi: In Shapo's home state, a key Supreme Court seat will be filled by the election. Mississippi has four seats and Ohio has three contested races out of four seats up for grabs. All three states are being closely watched by the industry.

"Court reform must stand on equal footing with tort reform" said Mark Behrens, a partner in the law firm of Shook, Hardy & Bacon in Washington, D.C., and counsel to the insurer nonprofit Coalition for Litigation Justice. "You're going to see very expensive campaigns in those three states," Behrens said. "The Democratic candidate in Illinois, supported by trial lawyers, may spend $10 million--the costs and significance of a U.S. Senate race."

Madison County, Ill., is considered a "judicial hellhole" by the insurance industry and legal experts. The justice who wins that open Supreme Court seat would fill judicial vacancies in the Madison County Circuit Court and the intermediate Appellate Court for the Madison County region, Behrens said. The justice also would decide certain "single-justice" issues, such as requests for extraordinary relief stemming from Madison County trial court rulings.

New Mexico: In New Mexico there are two Supreme Court races: one contested race and one retention election. "In New Mexico, not unlike Illinois, class actions have proliferated," said Bruce Ferguson, a senior vice president with the American Council of Life Insurers. "The composition of the current Supreme Court suggests this will continue."

Ohio: Ohio's Supreme Court races became even more important to insurers and manufacturers recently because the state Legislature passed landmark asbestos and silica lawsuit reform bills signed into law by the governor. Opponents had planned to challenge enactment of the asbestos law with a voter referendum, but are now pursuing constitutional challenges to the new laws in court.

"In Ohio, we are looking to maintain a restrained majority on the Ohio Supreme Court. The Legislature has acted reasonably to enact common sense asbestos and silica reform legislation. We are supporting justices who do not view their job as second-guessing legislative policy decisions," said Brenda O'Connor, vice president of public affairs with the American Insurance Association.

Ohio is the first state to pass asbestos reform requiring plaintiffs to meet certain medical criteria for a lawsuit to be heard. If its Supreme Court were to strike down this new asbestos reform law, it could send a signal to other states, Behrens said. They may not follow, but other states do notice, and a decision by the Ohio Supreme Court could serve as a guide to other states that may enact similar laws.

Elected vs. Appointed Judges

Behrens co-authored a legal paper in a Cornell Law School journal advocating appointive judicial selection at the state level. "If you really care about blind justice, whether a plaintiff or defendant, you don't want to feel like you're going to win or lose because you didn't give to the right candidate. Unfortunately, in states with elections, particularly those states with partisan elections, money has become a factor."

A majority of states use some form of election for selecting judges at the appellate and trial court level, Behrens said. Appointing judges takes the money out of the judicial process, but this generally requires a constitutional amendment in the states. This has proven difficult, Behrens added, because voters generally do not support such amendments unless they believe there is a compelling need for a change.

The trial lawyer strategy to try to nullify state tort-reform legislation through the state courts was developed around 1994, when Republicans won control of both the U.S. House and Senate, and had even more significant gains in the states, Behrens said.

Republican-controlled state legislatures passed sweeping tort-reform measures in states such as Illinois, which made trial lawyers concerned about their ability to pursue unrestrained awards, he said. The Association of Trial Lawyers of America realized that having allies in power in the state legislative or executive branches was not critical if trial bar allies held a majority of seats in the state Supreme Court. If the trial bar could not block legislation from being enacted, Behrens said, then the focus would shift to the courts to try to have that law nullified by activist judges.

The strategy was successful for a time, Behrens said. While pro-business groups focused on the legislatures, the trial lawyers focused on judicial races. "So for a while, they had success striking down tort-reform legislation in Illinois (1997) and Ohio (1999).Those decisions served as a wakeup call to the business community," he said.

The business community, insurers included, realized they also had to support judicial candidates and could not just focus on state legislators and governors. Behrens said that it became apparent that business groups would need to respond to the new trial lawyer strategy by supporting candidates with a restrained judicial philosophy.

Texas and Mississippi are two examples of states where changes have been made in the courts. "The rulings that have come out of the Mississippi Supreme Court this year are very different than the rulings that came out of that court not very long ago. The Mississippi Supreme Court should be applauded for joining the mainstream of American law," Behrens said.

In fact, the Mississippi Supreme Court elections are a case of the insurance and business lobbies "defending what we have," said John Lobert, a senior vice president with the Property Casualty Insurers Association of America. The same is true for Alabama, where three seats on the high court are on the ballot.

In states where availability and pricing of medical-malpractice liability insurance are at or near crisis level, tort reform is seen as a way of fixing the problem. While insurers have supported tort-reform efforts, they have cautioned that reforms may take a while to have an effect on the market because insurers would need to see how the courts interpret these new laws and whether they stand up to challenges.

The Texas Supreme Court has seen a similar change, Behrens said, crediting that state's insurance and business communities as being among the first to recognize how important it is to identify and support judicial candidates with a restrained point of view in order to improve the legal and economic environment.

"They recognized the need to support judicially restrained candidates before looking for tort reform," Behrens said.

Gubernatorial Races

Six states where the governor appoints the insurance commissioner--Indiana, Missouri, New Hampshire, Utah, Vermont and West Virginia--will be holding gubernatorial elections this fall, although the commissioner in New Hampshire would not be immediatley affected

Missouri: Missouri's governor and insurance director were the pied pipers of a multistate credit scoring study, the sound of which the industry found at best dissonant, at worst illegal. That study has gone away, and so will Missouri Gov. Bob Holden, a Democrat who was defeated in his party's summer primary.

"Holden was unpopular in the state, and was reaching for issues that would propel his popularity, such as credit scoring. It didn't work for him," said Wes Bissett, a senior vice president with the Independent Insurance Agents & Brokers of America.

Insurance Director Scott Lakin is a Holden appointee. The favorite to win the election is a Republican. "We expect to see a new commissioner after the election," Bissett said. Holden's primary loss may have also been a factor in regulators' decision to drop their pursuit of the multistate credit study and yield to the Federal Trade Commission, which has marching orders from Congress to conduct one, he said. "Missouri was a leading player in the whole credit scoring study."

Indiana: Long-time Indiana Insurance Commissioner Sally McCarthy left the post in July. Deputy Commissioner Amy Strati moved up to become acting commissioner. The governor who appointed McCarthy, Frank O'Bannon, died last year. His replacement, former Lt. Gov. Joe Kernan, is in his first race as governor, though in Indiana the governor and lieutenant governor run as one ticket, and the O'Bannon-Kernan duo won two elections. But Kernan faces Mitch Daniels, a strong Republican opponent in this gubernatorial race.

Utah: The governor's race in Utah has some industry lobbyists wondering about the fate of Insurance Commissioner Merwin Stewart. "Stewart does a commendable job. He chaired the NAIC Life Insurance Committee at one point, and is very active at the NAIC," said Bruce Ferguson, a senior vice president with the American Council of Life Insurers.

Gov. Olene Walker, the former lieutenant governor who moved up last November when President Bush tapped Utah Gov. Mike Levitt to head the federal Environmental Protection Agency, lost the Republican gubernatorial primary this year to Jon Huntsman Jr., a former White House aide. Huntsman is favored to win the governor's race, and since the governor's mansion remains in GOP control, it would seem to indicate Stewart would remain.

But "traditionally in Utah, the new governor changes all appointed officials," Ferguson said.

West Vhginia: West Virginia Gov. Bob Wise is not seeking re-election. The state is viewed as a Democratic stronghold (though President Bush won the state in 2000), and the Democratic candidate for governor, Joe Manchin III, is favored. Insurance lobbyists see this boding well for current Insurance Commissioner Jane Cline to be retained.

Vermont: Vermont Gov. Jim Douglas, a Republican, is up for re-election. His biggest challenge is expected from Burlington Mayor Peter Clavelle, a Democrat. Commissioner John Crowley heads the state's Department of Banking, Insurance, Securities & Health Care Administration, and is a Republican appointee.