N.D. Commissioner’s Departure Sparks Debate on Conflict of Interest

October 1, 2007

Consumer spokesmen want a national group of insurance regulators to toughen its conflict-of-interest policies, in part because of questions raised by last month’s resignation of former North Dakota Insurance Commissioner Jim Poolman.

Poolman’s departure is the latest instance of a top regulator leaving to work for the insurance industry, the representatives said in a letter to the National Association of Insurance Commissioners’ executive committee. Poolman is a former vice president of the association, which is based in Kansas City, Mo.

One of the letter’s signers, Don Morrison, of Bismarck, said the issue was being discussed at an association meeting in Washington, D.C., on Saturday.

“This problem of close ties (between state insurance regulators and industry) is more the norm than the exception. It’s been going on for some time,” Morrison said. “That does not instill confidence that insurance regulators are working for the public interest.”

Morrison, who is director of the nonprofit North Dakota Center for the Public Good, is attending the meeting as a consumer representative. The NAIC maintains a “consumer liaison program” and pays to have its members attend meetings.

Thirteen of the association’s 15 consumer representatives signed the letter, which Morrison said was an unusually high participation rate.

An NAIC spokesman, Scott Holeman, declined comment about the letter. A copy of it was sent to the U.S. Justice Department division that investigates cases of public corruption.

When Poolman, 37, announced his resignation, he said he wanted to start his own Bismarck-based consulting business. He had been North Dakota’s top insurance regulator for almost seven years.

Poolman said in an interview last week that he intends to join a consulting firm soon, but he declined to name it or give its location.

Poolman may have violated the NAIC’s existing
conflict-of-interest policy by exploring consulting work before he
resigned, and advocating a new insurance law that benefited a
campaign contributor, the letter says. The North Dakota Legislature
approved the measure this year.

The letter says the association should revisit the model law, which Poolman was instrumental in developing. The law regulates “life settlements” and “viatical settlements,” which are life insurance industry terms for the resale of policies to investors at a discount to the policy’s value.

“Allegations of impropriety, and policy positions based on campaign contributions, raise real concerns about the integrity of the process used to update the viatical model act,” the letter says.

Poolman said he had not violated the policy or done anything unethical, although he said it was legitimate to question his decision to quit his North Dakota position early to work as an industry consultant.

Birny Birnbaum, director of the Center for Economic Justice, a consumer advocacy group based in Austin, Texas, said the NAIC needed to reopen debate on the model law’s provisions to clear up allegations that its language was unduly influenced by a segment of the life insurance industry.

Birnbaum is an NAIC consumer representative and signed the letter mentioning Poolman’s circumstances, which he said may hurt future efforts to persuade other state legislatures to approve the model law.

“I don’t want to see the life settlement people go in and say, you know, this is really a dubious model, there’s real questions about how it was developed,” he said. “The point is, the NAIC needs to clear the air … I want to see a debate on the merits.”

After Poolman resigned, electronic mail messages obtained by The Associated Press showed he had told associates he wanted to become a consultant to the life insurance industry.

In AP interviews, people familiar with Poolman’s plans said he expected to make $300,000 to $500,000 as a consultant, and have use of a New York City apartment. Poolman described the compensation figures as exaggerated rumors.

A conflict-of-interest policy that covers members of the association’s executive committee forbids acceptance of “promises of future benefits, including offers of employment, from any entity or organization that might benefit because of a member of the executive committee’s connection with the NAIC.”

The consumer representatives’ letter said “recent news reports and e-mails” suggested Poolman’s consulting arrangements “would violate this part of the conflict of interest policy.”

Birnbaum said the NAIC should give the policy teeth by requiring association officers, and chairmen of its committees, to sign an agreement to refrain from lobbying any legislative, administrative or judicial panel on any issue under the regulator’s former regulatory jurisdiction for a period of time.

If the agreement were violated, the former regulator would pay a fine of one or two years’ worth of income, he said.

It has been common for state insurance regulators who become members of the association’s executive committee to later join private insurance companies or trade associations.

Alessandro Iuppa, the Maine insurance superintendent, resigned his post Jan. 13 after completing a one-year term as president of the NAIC, saying it was “time to move on to the next chapter of my career.” Two days later, Iuppa began work as a top lobbyist for Zurich Financial Services Group, a global insurer based in Switzerland.

Ernst Csiszar, South Carolina’s insurance director, quit his state job and his position as NAIC president in August 2004 to become chief executive officer of one of the industry’s largest trade associations, the Property Casualty Insurers Association of America. Csiszar stayed in the job for two years, resigning in September 2006.

Birnbaum said he was “extremely disappointed” in Poolman’s resignation, but said he was pleased that it has ‘”brought the problem of the revolving door to the surface.”

“I am in no way excusing what I think are the problems with Jim Poolman resigning suddenly, and allegedly setting up a consulting firm for the industry … but he is not the only one, and he is not the worst case,” Birnbaum said. “The thing is that in most states, it’s not an event. It’s not a news event.”

A chronology submitted with the consumer advocates’ letter implies Poolman advocated changes in the model legislation because of a $25,000 contribution to his re-election fund in February 2006, and a $15,000 donation to the North Dakota Republican Party in July 2006.

The $15,000 came from Ira Lawrence Brody, who is a partner in InsCap Management LLC and the company’s chief operating officer, disclosure filings show. Brody’s wife, Sara Bachrach, donated the larger amount.

InsCap Management, which is based in New York City, helps rich individuals finance the purchase of life insurance policies, the company’s Web site says.

The chronology implies that Poolman worked to shield InsCap’s business practices from being affected by the model legislation after he received the contribution. Most of its elements were circulated for months as part of an unsuccessful, behind-the-scenes effort to derail the insurance bill in the North Dakota Legislature.

Poolman denied his actions were influenced by campaign contributions, and Birnbaum said “it would surprise me” if that were the case.

“There have been a lot of allegations against Poolman regarding campaign contributions (and) the InsCap stuff,” Birnbaum said. “At least in my experience, Jim Poolman has done a lot on behalf of consumers, both in North Dakota and across the country … I don’t want to see his name and reputation smeared based on allegations like that if they’re not true.”

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