Spitzer's Investigation could stall insurers' agenda.

The ex-president of the National Association of Insurance Commissioners--now the president of the Property Casualty Insurers Association of America--said he left the regulators' group and his post as South Carolina's insurance regulator in part because it was taking too long for states to change their insurance regulations.

During the PCI's National Conference in Washington, D.C., in late October, Ernst Csiszar said he thinks that New York Attorney General Eliot Spitzer's investigation into insurers' relationships with brokers has sidelined much of the industry's legislative agenda.

"Changing public policy is never easy, but it is exceptionally difficult during a perceived 'crisis,' which is how opponents of a free and competitive insurance market will view the Spitzer allegations," Csiszar said.

The fallout from the Spitzer lawsuit, Csiszar said, stands to "impact our entire public policy agenda," mainly the effort to extend the Terrorism Risk Insurance Act to 2007 and the effort to reform the regulatory system.

Regulators and the NAIC, already facing criticism in Congress for the pace of their regulatory changes and the perceived weaknesses of the state-based regulatory system, may act quickly on the issues Spitzer has raised in order to show they still can effectively regulate the industry, Csiszar said.

Csiszar also warned that the Spitzer probe would "taint the entire industry in the minds of the public," and that the industry would "need to work hard to re-establish credibility" with regulators and lawmakers.

He also reiterated that the PCI opposes the regulation of private contracts, and he expressed concern that "overzealous regulators" may outlaw long-standing business practices. "Allegations that incentive compensation agreements negatively impact every insurance consumer in the U.S. make great headlines but just don't hold water," he said.

Lawrence H. "Larry" Mirel, commissioner of Washington, D.C.'s Department of Insurance, Securities and Banking, said authorities should take a more "rational," measured approach to investigations. Not to say he's soft on criminals: "If they've actually committed a crime, they should be prosecuted, and if they're convicted, put in jail."

Mirel said the problem lies in how such investigations usually are conducted, with genuinely bad actors sometimes getting off the hook with a fine. "I get more calls about this issue every, day, from the press and from my own (Washington, D.C.) government. 'What are you going to do about this?' People rush to paint the insurance industry as the bad guy," Mirel said. "I think Mr. Spitzer is looking into some things that need to be looked into, but what he's pointing to is nothing new--been going on a long time--and it's not unique to insurance.... Every industry finds ways to incentivize people to sell more of its products.

"What distresses me is many times these allegations are made against a wealthy industry, and then you just wait for them to come forward and settle. Typically, as part of these settlements, these companies admit no wrongdoing.... If you're not admitting guilt, what's the point?" Mirel said. Companies then pay stiff fines, the costs of which are borne by the companies--not the people responsible for making the bad decisions, he argued.