State insurance division could use more clout

Steve Kanigher and Cy Ryan

Friday, Aug. 9, 2002 | 5:47 a.m.

WEEKEND EDITION: August 11, 2002

There is a move afoot by some lawmakers to give the Nevada Insurance Division more clout to regulate companies that sell medical malpractice insurance.

This became an issue after rates skyrocketed in Southern Nevada during the past year, leaving many to wonder why the division didn't do a better job.

Leading the effort to strengthen the division is Sen. Randolph Townsend, R-Reno, chairman of the Commerce and Labor Committee, which has jurisdiction over the insurance industry. He said he plans to get bipartisan support for a bill he will introduce next year to change the way the division operates.

"There are those who believe the insurance division should have at least called in the providers when they saw their expenses rising," Townsend said. "If the insurance companies did not provide adequate actuarial detail to go with their expenses, then shame on them.

"Why didn't the insurance division pick up on the fact that there should have been rate increases when you had five years of no rate increases? When you raise rates by 100, 200 or 300 percent, that's ridiculous."

Medical liability insurance premiums rose steadily in Nevada through the mid-1990s until St. Paul Cos. of Minnesota struck a deal with the Nevada State Medical Association to discount rates 15 percent. The company subsequently received permission to raise rates in Southern Nevada by 8.5 percent in 1999 and 10.4 percent in 2000.

But in St. Paul's bid to acquire the lion's share of Clark County's medical liability business, it still kept rates artificially low in the late 1990s, according to critics such as attorneys who opposed caps on damages for pain and suffering. The rates went up as much as 300 percent after St. Paul pulled out of the medical liability business in December.

Las Vegas public relations executive Billy Vassiliadis, who lobbied on behalf of attorneys during the special legislative session on tort reform two weeks ago in Carson City, said insurance companies had received a free pass.

"Unfortunately, with a small state we don't have control over the insurance companies," he said. "Real insurance reform has to happen in Washington, but it won't."

Congress has left regulation of insurance companies to the states. Part of the problem, insurance division officials say, is that they are permitted by law to rule on company requests to raise or lower rates, but are powerless to dictate to insurers the timing of those adjustments.

"It is not the role of the insurance division to contact the company to say that a rate filing is needed," Bruce Heffner, the division's chief insurance assistant, said. "A lot of these are business decisions. I do not know of any regulatory authority in the country that expresses an opinion that a company has to raise or lower rates."

Another problem, according to Townsend and Assembly Majority Leader Barbara Buckley, D-Las Vegas, is that the division is understaffed. It has 73 full-time positions, but only 62 are filled.

"The insurance division has not had enough staff to do its job," Buckley said. "(It needs) to be more aggressive at accepting complaints, investigating them and enforcing them. I have had complaints from doctors that they made complaints to the division and couldn't get any responses.

"Many individuals have said that for years St. Paul engaged in predatory pricing, but when things are going well no one looks into it. To be fair, other states throughout the country have been caught in the same crisis because of the pullout of St. Paul. But the insurance division should have looked into cost of living increases.

Not as aggressive

"I believe the insurance division was not as aggressive as it should have been in scrutinizing what was occurring in the market."

Buckley said she also objected to a decision by the division to allow insurers to charge obstetricians a 25 percent rate surcharge if they delivered more than 125 babies a year.

"There's no data that says that delivering the 126th baby is more risky than the 125th," Buckley said.

According to the National Association of Insurance Commissioners, Nevada's division ranked 24th in the nation by collecting $140.6 million in insurance premium taxes in fiscal 2000. But its budget that year -- $5.18 million -- ranked it 39th in the nation. Its budget this year -- still $5.18 million -- ranks it 41st.

Townsend said there are several things he would like to accomplish with his bill. A larger staff would allow the division to do a better job scrutinizing how well insurers are doing with their investments in the bond market and on Wall Street, he said.

If the division knows that a company is struggling with its investments, that could provide advance warning that the insurer may have to raise its premium rates, he said.

"Because of what we went through in the special session I can tell you we have to restructure the entire insurance division," Townsend said. "They have to be proactive. We want to make sure that the premiums every year are adequate. Insurance companies are better off charging a higher premium so that they don't rely so heavily on the stock market."

No argument

The senator won't get an argument from Heffner on staffing.

"I can tell you that when I was in Arkansas (it) had twice the staff that we have here," Heffner said. "This division has a lot of responsibility for the staff that we have."

Townsend said he believes insurance companies should settle malpractice claims as much as possible out of court rather than pass on the higher costs of a jury award to doctors. If anything, those additional costs should be borne by the company shareholders and not the physicians when those cases could have been settled for less money, he said.

He also wants the division to be able to respond to inquiries from doctors who want to know why their premiums are increasing, he said.

"There should be a place where doctors can get their questions answered," Townsend said. "They definitely need a consumer division."

Insurance lobbyist Jim Wadhams of Las Vegas cautioned that to give the division more teeth, "you have to give (it) political protection for forcing rates up."

"In retrospect, from 1995 to 2000 we should have had rates go up," Wadhams, a former state insurance commissioner, said. "But if we're saying we should have had 15 percent rate increases during each of those years, phone calls of complaints to the governor and legislators would have been rampant.

"It is the job of the insurance division to make sure rates don't go up more than necessary while also making sure no one goes broke. I would absolutely improve staffing in the division to look at the pricing and financial condition of insurance companies. But you have to have sophisticated people to do that."

Heffner also cautioned against overreaction, arguing that St. Paul's pullout affected other states as well.

National problem

"When you look at St. Paul's decision to pull out, that was a national problem," he said.

St. Paul stated it got out of the medical liability business because of rising malpractice jury awards and the effects the Sept. 11 terrorist attacks had on the company's bottom line. But Chuck Knaus, an insurance division actuary, said there was also evidence that St. Paul's underwriting ability was not as good as it should have been.

"When you offer a 15 percent rate reduction to the medical association and take on all comers that is probably not a prudent business decision," Knaus said.

As an industry, insurers rank below resorts, organized labor, health care organizations, attorneys and construction companies when it comes to campaign contributions. Of the $7.6 million contributed to legislative candidates in 2000, only $101,700 came from the insurance industry, according to the Progressive Leadership Alliance of Nevada, a coalition that includes organized labor, attorneys and women's groups.

Of the 886 organizations that registered to lobby at the 2001 Legislature, only 42 were insurance interests.

"They are not a big player at the Legislature," Paul Brown, Southern Nevada director of the alliance, said. "They play a different game. If they don't get what they want, they threaten to get up and leave."

Gov. Kenny Guinn and other public officials have said that Nevada is at a disadvantage when it comes to regulating insurers because it is a small state and the companies can simply take their business elsewhere.

"It's an effective tool," Brown said. "They pick up the ball and bat and leave. That's an interesting strategy."

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