A rookie insurance commissioner plays on a global stage
Checking his watch, Thomas B. Leonardi worked quickly through his dense defense of this nation’s state-by-state approach to insurance regulation. He had lots to say to an audience at a regulatory symposium in Hartford, but there was a flight to catch, this time to Seoul, South Korea.
Leonardi, a venture capitalist who was Gov. Dannel P. Malloy’s surprise choice as insurance commissioner in February, has forcefully jumped into an international debate over regulation of global financial-services companies sparked by the 2008 financial crisis.
With the governor’s strong backing, Leonardi has become a voice of caution against what he says is a rush towards a one-size-fits-all regulatory model that could disadvantage U.S. insurers in global markets. In defending U.S. regulators, he also is defending a system familiar to domestic insurers.
Hardly a marketing campaign, Leonardi’s travels and his national and international networking and advocacy still can been seen as another dimension of the Malloy Administration’s efforts to strengthen the Connecticut brand in insurance.
The voice of the Connecticut insurance commissioner is being heard nationally and internationally, and the stories in the industry press tend to note that this small New England state generates more insurance business than all but a half-dozen nations.
Catherine H. Smith, the commissioner of economic development, applauded his activism.
“We’re the insurance capital for the United States. We absolutely should be there,” said Smith, a high-ranking ING executive before joining the administration. “He’s really smart to take the issue on.”
Leonardi’s public questioning in August of a new and evolving European regulatory approach, dubbed Solvency II, generated press coverage in the United Kingdom that portrayed him as a harsh critic, a characterization he says is exaggerated. Leonardi says his point is the U.S. system works, and U.S. insurers lead the world with 33.56 percent of market share, followed by Japan with 11.67 percent and the U.K with 6.48 percent.
In Connecticut alone, insurance is a $156 billion business.
Leonardi says he supports close cooperation with European regulators, a point he reinforced Friday by announcing a memorandum of understanding between his department and Swiss authorities. But he is outspoken in his defense of the U.S. system.
“I think U.S. regulators need to stop apologizing for our regulatory system, one that has been in place for more than 140 years and has continually adjusted to meet the changing demands of the insurance marketplace,” Leonardi said in August during an online, worldwide forum. “While not perfect, our national, state-based system has worked remarkably well, even in the market downturn of 2001 and the financial crisis of 2008.”
This week, he is in Seoul for the annual meeting of the International Association of Insurance Supervisors, where the focus is “ComFrame,” insurance-speak for an attempt to develop a common framework to supervise what the industry calls “IAIGs,” or internationally active insurance groups.
On Friday, he spoke at the University of Connecticut Law School at a symposium with a jaw-breaking title, “International Insurance Regulation in a Post-Crisis Environment: Perspectives from the US, the EU, China and the Middle East.”
Malloy joined Leonardi in an amphitheater that usually serves as a moot court on the Hartford campus, becoming the first governor to participate in one of the school’s academic programs, according to its dean, Jeremy Paul.
“I know very well what this symposium is about,” Malloy told the audience. “It’s about a new climate on an international basis, and one which poses opportunities and dangers to the American industry.”
As did his commissioner, Malloy cautioned against an overreaction to the near-failure in 2008 of the nation’s largest commercial and industrial insurer, American International Group, which required an initial government bailout of $85 billion.
“I totally support and recognize that bad behaviors previously engaged in the financial services arena cannot be allowed to repeat themselves,” Malloy said. “But I’m also equally cognizant that role of traditional insurance companies in the collapse…is negligible.”
Malloy noted it was AIG’s trading of credit default swaps in its London office, not its core insurance business, that proved so disastrous.
Connecticut has been successfully regulating the insurance industry since 1865, ensuring stability in a multi-billion dollar industry, Malloy said. The U.S. regulatory structure should not become subordinate to an evolving global model, he said.
The governor clearly was happy to see UConn’s Insurance Law Center play host to regulators, executives and academics from the U.K., Germany, Italy, Saudi Arabia, Dubai, Oman and China. He thanked them for coming to Hartford.
“It is a recognition in some sense of the importance of Connecticut to the industry,” Malloy told them. “We certainly are very important in the industry. We are a leading writer of life insurance policies and second in total sales.”
Malloy’s courtship of the insurance industry, which he says employs more than 75,000 in the state, has been applauded by business and watched warily by some consumer advocates.
With a boss who is enthusiastically lending offering his hand to the industry, the question inevitably arises: Whose interests will Leonardi watch, those of an important home-state industry, or consumers?
“Our mission is to protect the consumer. There is no question, that’s number one,” Leonardi said. “But you can do that in a way, in a setting where companies don’t feel like they are getting stymied or having unnecessary rules in place that are just there for the sake of rules.”
Leonardi did move quickly on behalf of consumers after Tropical Storm Irene, convincing insurers to waive significant hurricane deductibles written into many storm policies. He also tightened department guidelines that allowed the deductibles.
And he sided with consumer advocates in March at the National Association of Insurance Commissioners, helping to delay a federal regulation designed to protect fees for health insurance brokers. Advocates said the regulation would have driven up the costs of insurance to consumers.
But Leonardi works for a governor whose top priority is job growth. And as Malloy told the Hartford symposium, “I have not hidden my desire to see insurance as a growth industry in Connecticut again.”
Malloy mentioned that CIGNA recently designated its campus in Bloomfield, just outside Hartford, as its corporate headquarters. The designation came after the administration provided the insurer with an aid package worth at least $47 million in return for a promise of at least 200 news jobs and an investment of $100 million.
“I have a strong working relationship with the heads of many of the companies that are represented in this room, and we are sitting down together on a regular basis,” Malloy said. “I want to work with the industry.”
At the symposium, Malloy also talked about Leonardi’s role in making the Insurance Department “a partner” to the industry and to his efforts to grow jobs.
“We have a job to do,” Malloy said. “He understands it and is a driving force, I think, in reinvigorating our Insurance Department in a way, a manner in which it recognizes the necessity of being a partner to the industry and recognizes my role of growing the industry once again in the state of Connecticut.”
After the symposium, Leonardi said his job was to ensure a stable environment for consumers and the industry.
“I don’t think I should the cheerleader for the industry. I shouldn’t be out there marketing,” Leonardi said. But in the next breath, he added, “I want to tell people what a great industry we have, and how important it is to our state, the fact we are the number one writer of life insurance in the country, that we’re number two in all insurance.”
Tom Swan, the executive director of the Connecticut Citizen Action Group, applauded Leonardi for his strong stance on the brokers’ fee issue, but he sees the administration as too concerned about the health of the industry.
“I think the consumer continues to take a secondary role in the insurance department,” Swan said. “I thought they were little quick to say how great the insurance companies were in responding to Irene. The giveaway to CIGNA, I think, is outrageous.”
Swan criticized Malloy for vetoing a bill that would have required greater state oversight of health insurance rate hikes, but other consumer advocates credited Leonardi with resurrecting portions of the bill by pledging to hold public hearings on certain types of rate increases.
“I think he is a natural conciliator. He’s good at bringing both sides together,” said Victoria Veltri, the state healthcare advocate, who objected to Malloy’s veto. “I think that was pretty well demonstrated during the rate review issue.”
Malloy, who calls his commissioner “brilliant,” told the symposium audience that Leonardi is motivated by public service.
He was the chairman and chief executive of Northington Partners, a venture capital and investment banking firm specializing in the insurance industry, when he approached the administration, offering his services.
“Tom didn’t need to do it,” Malloy told the audience, noting he gave up a comfortable life. “He clearly answered the call for public service, a call many other folks might have rejected.”
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