“I’m mad as hell, and I’m not going to take this anymore.”

In 1976, the movie, “Network” dominated the Academy Awards with ten nominations. Four of the nominees secured awards in their category. One scene in the movie created a cult classic in the form of actor Peter Finch’s portrayal of anchorman Howard Beale and the rant “I’m mad as hell, and I’m not going to take this anymore.” (https://www.youtube.com/watch?v=QMz_RQuTBlI.) For history buffs, Finch’s Best Actor award was presented posthumously, the first and only time an Oscar has been presented posthumously.

So, in August 2019, 43 years down the road from the debut of “Network,” why do I think that this rant is pertinent  to the insurance industry? Here is my take on the rant’s applicability. For the past several decades, on a regular basis, I have heard from insurance company leaders that they are “mad as hell” about what they view as a functional monopoly in the insurer ratings sector.

... competition among competent rating agencies is a key component of the National Council of Insurance Legislators Model Act to Support State Regulation of Insurance Companies by Requiring Competition among Insurance Rating Agencies.

Some are frustrated because they believe that the functional monopoly does not understand them. Other leaders have told me that they do not make progress in their dialogue and discussion with the ratings company because of analyst turnover and the need to chronically educate the new analyst about their company, culture, programs, etc. Another segment of leaders has advised me that they believe that they are held hostage to a theoretical model and they believe that their actual operating results and balance sheet strength are subjugated to the theoretical output of a model.

When I hear from several segments of leaders who, for a variety of reasons, are “mad as hell” and I think about the significant percentage of the insurance industry, whether the insurer operates in the property, casualty, life, or health sector, opting not to be rated by any rating agency,   it is my clinical observation that leaders are “mad as hell” because “one size rating agency does not fit all.” If this is the problem, a solution is competition among rating agencies to end a functional monopoly. To this end, competition among competent rating agencies is a key component of  the National Council of Insurance Legislators Model Act to Support State Regulation of Insurance Companies by Requiring Competition among Insurance Rating Agencies. See this Model Act at the NCOIL website: https://ncoil.org/ wp-content/uploads/2017/11/rating-agency-model-final.pdf.

Introduced in a few states and enacted into law in the State of Ohio, the Model Act reminds the insurance industry and rating agencies that the states have sole authority for the regulation of the business of insurance as provided under the McCarran- Ferguson Act. Independent of the insurance company leaders who spoke to me, acting in the public interest that they represent, NCOIL addressed the concerns of the leaders who are “mad as hell.” The Model Act, Section 2, paragraph 5 speaks to insurers that opt to be rated by reciting “ ... among those that are [rated], companies make choices about rating organizations as it relates to their markets and business models.”

Similarly, the Model Act speaks to state regulation of insurers and the primacy of state regulation by addressing the large percentage of insurers that have opted not to be rated. The Model Act memorializes (in Section 2, paragraph 5), “There is no requirement that duly licensed insurance companies be rated …”

Why have laws, statutes, bulletins or other public material often referenced but one rating agency? According to Section 2, paragraph 7 of the Model Act, “An unintended yet direct consequence of designating a single, exclusive insurer rating requirement … is the diminution of ‘public regulation by public authority’ and an implication of private regulation of insurance.” In other words, when there was a dearth of competent insurer rating organizations, the naming of a single, exclusive insurer rating organization might have been appropriate. However, today, given the objective evidence that there are several competent insurer rating organizations, NCOIL’s Model Act to Support State Regulation of Insurance Companies by Requiring Competition among Insurance Rating Agencies is the “response to this threat to public regulation ”

How might we, the collective “we” meant to embrace consumers, insurers, producers, third parties, etc. who are frustrated and “mad as hell” address the issue? Here is one take — being “mad as hell” is one component of Peter Finch’s rant. His call to action is “and I’m not going to take this anymore.” It is the response of those who are not going to take this anymore that will determine their future and the future of the insurers that they lead. Being frustrated while doing nothing new sustains the status quo. Courageous leaders recognize that one size rating agency does not fit all.

Summing it up, it may be time for the industry to move beyond solely voicing frustration about a revised insurer rating paradigm. Industry frustration could morph to reflect the regulatory as well as rating agency changes that exist. The changes include but are not limited to myriad enhancements in the financial examination practices regulators utilize to evaluate insurers. Insurer rating alternatives, such as Demotech, with our thirty-year track record as the first to review and rate independent, regional and specialty insurers, and NCOIL’s Model Act to support state, i.e. public, regulation of insurance are a few of the reasons that one size rating agency no longer fits all insurers.

To do more than vent, courageous leaders must take action to effect the change the industry desires. Change is the only way to demonstrate “I’m not going to take this anymore.” If you are an insurer that is Demotech rated, it is time for courageous leaders to state that you selected Demotech because:

?          Demotech was the first to review and rate independent regional and specialty insurers. No one else did so until Demotech initiated its coverage in 1989.

?          Demotech is the only rating service that has ever had the impairment and survival rates of ratings calculated and validated by independent third parties.

?          Demotech’s FSRs have been validated to be true.

A. M. Best has indicated in court, whether as plaintiff or defendant, “The rating … represents the opinion of A.M. Best and not a statement of fact …”

?          Virtually all insurance agent’s errors and omissions insurance providers specifically recognize or otherwise accept Demotech FSRs of A or better. Some accept Demotech FSRs of S or better.

?          The National Council of Insurance Legislators passed a Model Act emphasizing that the states, e.g., not privately-held rating agencies, regulate the insurance industry. In the Model Act, Demotech was specifically identified as a competent rating agency. The State of Ohio has already enacted its version of this Model Act.

If you are an insurance industry leader with a proven track record, confident that your company is headed in the proper direction, it is likely you have the support of your board, employees, policyholders, producers, reinsurers, claimants, regulators, and, if applicable, investors. Why should you be pressured to seek the approval of a single, privately-held, for profit insurer rating agency? If the thought of doing so makes you “mad as hell,” it may be time to say “I’m not going to take this anymore.”

For more information about The Demotech Difference, visit demotech.com or send me a message to discuss how we can help your company expand and grow.