Insurance chief plays it 'down the middle'

One on one

October 28, 1991

One on One is a weekly feature offering excerpts of interviews conducted by The Evening Sun with newsworthy business leaders. John A. Donaho is the Maryland Insurance Commissioner.

Q. With the increasing number of insurance companies being seized in other states, what is the Maryland Insurance Division doing to prevent such occurrences here? Is there really anything you can do to prevent such an occurrence?

A. As you know, we have had only two insolvencies in the last decade. We hope we don't have any more. We have recently done several things. We require all of the CPA audits from all of the companies, we require actuarial certification, and I, as you know, also put out the junk bond regulation, which limits the investment of funds in non-investment grade securities. We also have put out recent regulations that require the life insurance companies to report on withdrawals [by policyholders] and the property and casualty companies to report on their reinsurance coverage. Those are significant steps toward effective monitoring of the situation. We're intensively trying to track our 100 domestics as well as working with other states on the 1,470 companies that are licensed here.

Q. When you were first appointed you said you would regulate without "fear or favor" and since then you turned down a number of companies on rate increases, you've seized one HMO, you've probably been tougher on Blue Cross and Blue Shield than other insurance commissioners and at the same time you're the only insurance commissioner I know of who had the City Council president calling for your resignation because you didn't agree with her on territorial rating. How would you sum up your two years here?

A. Well, we certainly have tried to be right down the middle. Automobile insurance, of course, is a problem area and Baltimore City is a special problem area. But the only thing we can do about that is their lost cost [the amount paid by insurance companies in claims]. Unless you can tackle that, even if they ran their own insurance company, they would be faced, basically, with same problem. So it's not an easy one. Territorial rating is the law of the land and every state uses it, including Wyoming. But looking at my tenure, which has now exceeded the national average for insurance commissioners, I think we have been firm, but we have been cooperative. I think Blue Cross would be a case in point where we have been very firm, and we have turned them down, but I also think we have been very helpful to them in forcing them to recognize some of the issues, such as the proper payment of claims and keeping their cost under control. We have certainly worked hard on USF&G and its problems and we worked with the variety of HMOs that have had problems. HMOs are a difficult situation themselves. So we've tried to be positive and we've also tried to be pro-active, so people think we should try to be even more pro-active. Others probably wish we weren't as pro-active. I think that middle ground is where the regulator ought to be. It's very difficult to get those who have regulated to agree to the need for regulation and to understand regulations. On the other hand, they're others in the public who think that we don't regulate enough. But we can't regulate to the point where we make companies insolvent, that's why I mentioned the relationship between rate-making and rate approval and solvency. I wish we were doing more, I wish we could do more for the public, and to educate the public. But we've done a great deal to try to get the insurers to do more to educate the public and to do a better job at communicating with them. I think that's one of the critical problems in the insurance business -- there is a true lack of communication.

Q. You took the job in May 1989, and at that time you said it was an interim position, and now two years later you're still here. How do you explain that?

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