Few people have proved to be such a thorn in the insurance industry's side as J. Robert Hunter.

What particularly annoys some insurers is that Mr. Hunter had himself once been an insurance professional before joining the Federal Insurance Administration as an actuary and ultimately ending as acting federal insurance administrator in the mid-1970s.

But it was as head of the National Insurance Consumer Organization, which he founded in 1980, that Mr. Hunter made waves. He criticized industry practices and at one time blasted the industry as being so unattractive to college students that it could fill its management ranks only with "dregs."

When Texas Gov. Ann Richards named Mr. Hunter state insurance director in 1993, some insurers feared the worst, but many later said that Mr. Hunter proved to be unexpectedly even-handed.

Mr. Hunter, 60, now director of insurance for the Consumer Federation of America, explained why he has taken the positions that he has in an interview with Washington Editor Mark A. Hofmann.

How did someone who started out professionally in the insurance industry end up so critical of the insurance industry?

It's a combination of things. I grew up in an insurance home. My father was a marine insurance adjuster. During the war, he would tell me these stories about how it was a business based on good faith and how people would take each other's word and claims would be paid in advance, just on the word of somebody to keep the war effort going so ships could be repaired. It just sounded terrific.

When I took the job at the federal government as chief actuary in 1971,

I actually viewed it as a stepping stone, good for my resume, so I could come back into the insurance industry, and hopefully become an executive of some sort.

When I got my first paycheck and I took the paycheck into the bank to cash it and I'm looking at the paycheck, and it was from the people of the United States. And I said, "Gee, you know, just like my other checks all came from the insurance companies and I gave them my allegiance, I really owe my allegiance to the people." I really started looking at insurance from their perspective.

I still gave weight to the industry viewpoints, but was just aware that there was another viewpoint.

Over the years, some of your critics say you have been more interested in making sensational charges than in being fair and balanced in your criticism. Why do you think you have aroused such strong passions in the insurance industry?

I don't know why I arouse strong passions because I don't think I try to be sensational. They were surprised when I went to Texas and was balanced. I said, "Gee, my job when I was at NICO wasn't to be balanced. My job when I was at NICO was to raise issues."

A consumer group's job is to raise issues they think are being handled inappropriately.

Early on, insurers employed several different strategies. But they had never faced a consumer advocate before. First they ignored me. Then they attacked me as totally out of the mainstream, wacky, off the wall.

The first issue I raised was we ought to factor investment income into rate making, total-return rate-making methodology. That was the first report from NICO and I said it would save $5 billion if it was fully implemented in auto insurance alone. They all said this is crazy. Now they accept that as an adequate way to make rates.

I've never been really radical in terms of what I was saying. They just didn't like anybody disagreeing with the industry.

I may have overstated things on occasion, like when I used the word "dregs." Obviously, I apologized immediately on that.

I was saying that the insurance industry falls so far short of its promise that when I go to universities and ask how many people would like to work in the insurance industry, no hands go up. And that's bad because you'd assume if the insurance industry was really doing its job right, it would attract the young, idealistic people. That's why I used the phrase, why I said instead of getting the best out of these classes, they're getting the dregs. Well, that was obviously the wrong choice of words.

But I think in the main, I've been careful because the industry is always ready to pounce on a bad study like the Public Citizen solvency study. And they haven't been able to pounce on me much.

In 1980, after leaving the Federal Insurance Administration, you founded the National Insurance Consumer Organization to help consumers better understand insurance. Did NICO accomplish that?

The goals are pretty much the same. Partly it's consumer education, and obviously we haven't achieved it. I think they're better than when we started, but there's still a shortfall.

Consumer education was one of the prime goals. But one of my goals was always to get other people involved on our side because it was never anywhere near to being a close fight. When I started, I was it. There was nobody else.

There's also public policy analysis, research, media work.

How did becoming head of the Texas State Board of Insurance change -- if at all -- your attitudes about insurers?

I knew I would be even-handed, they just didn't believe it until I actually did it, because I understood the difference between being a regulator and being an advocate.

So I was able to be much more balanced and judicial in looking for solutions. I always respected most insurance executives; I didn't respect them all, but that would be true of any industry, I guess.

There are two kinds of issues I try to raise. Some are going after particular bad practices by insurance companies. Quite frequently, I think I'm going after a bad guy.

Then there are the general issues, like the investment income question where I think the whole industry is off base. Not because they are bad, but because they are getting away with it.

Maybe they just need to be thinking differently. A lot of us never thought much about investment income until the interest rates went to double-digits.

Sometimes when I raise an issue, I don't think they are all bad guys. I just think it's an institutionalized across-the-board kind of change that needs to be done.

Do you think insurers and their trade groups have at times intentionally mislead the public?

I think the property/casualty industry intentionally tried to mislead the public on the insurance cycle in the mid-1980s, trying to blame it on the lawyers. The crisis was not manufactured. The crisis was caused by this cycle and they suddenly were way, way short on reserves. Some companies got very frightened.

Where I consider they misled the public was they turned around and said "Oh, those lawyers did it." They said, "We're good managers and we had nothing to do with it. We just got surprised by these huge lawsuits." That's nonsense.

You may have other arguments to make for tort reform, but this is not one of them. The problem here was an insurance industry out of control and it didn't manage itself properly, and I proved it with numbers. Their attempt to blame it on the legal system was just fraudulent.

Do you think the crisis of the mid-1980s was manufactured by insurers to win tort reform legislation?

The crisis was not manufactured, the excuse was manufactured.

Why has the commercial insurance marketplace been soft for so long?

The market is soft because it's overcapitalized. And the outstanding stock and bond market makes and keeps it well overcapitalized. I don't see any immediate kind of potential for any immediate kind of crisis.

Could it happen? Sure it could happen. Greed is infamous.

Companies will overcompete at the end of a cycle. If you continue to have overcompetition at a time when the market turns sharply downward -- which is always possible when you get to a market like this -- you could obviously have some kind of crisis.

In the last three or four years, there have been very few, if any, failures of major property/casualty insurance companies. What do you attribute that to?

You'd have to be pretty dumb to fail in this market. I mean the stock market just keeps going up and up and up and the bond market's strong. It's pretty hard to fail.

How would you rate the quality of state regulation?

Some states are almost not there in terms of regulation; some states have very high quality departments, some have excellent leadership. So, it's really spotty.

What changes do you recommend to improve the regulation of commercial insurance companies?

You have to split it between large commercial accounts and smaller commercial accounts. Smaller commercial accounts are sort of like individuals and need some of the same kinds of protection.

Having said that, I think large commercial accounts don't need all those kinds of protections. I've talked to (American Insurance Assn. President) Bob Vagley and others over the years about the possibility of easing regulation on these larger accounts and having more freedoms.

I'm for that generally. The only area I can think of where I differ is they want to get the large commercial accounts out of the guaranty funds.

Which is better equipped, the states or the federal government, to regulate insurers, given the entry of banks into insurance?

The feds are better probably to regulate banks, the states are better equipped to regulate insurance companies. It seems to me what we need in the federal-state question is mature thought about it, forgetting about turf but looking at who could do what best.

It's clear to me that there are certain things the feds can do better.

Suppose Lloyd's of London had gone under, for example. It seems to me the feds could be better dealing with Britain than others about what happens in the wake of that. I don't see how a state could enter into a treaty with London to try to solve it. It would be unconstitutional.

There are a lot of reasons the federal role needs to be reconsidered. Banks' entry is only one of them. There's also the merger mania, and the multinational nature of insurance. It's very important that we have a national approach.

National is a key word, here. To the extent that the NAIC can do something like the accreditation program, it has at least a national minimum, so some of these national approaches could be done by the states.

What do you think about the National Assn. of Insurance Commissioners' efforts as a group?

They spend a lot of time -- too much -- trying to protect their turf and not trying to do what's best. Of course, the NAIC makes some difference. It seems to me that with the accreditation program, if it really works and stays in place and doesn't get watered down too much, the NAIC can make a very significant difference.

If it just becomes a model-bill-producing group and no states pay any attention to them, which happens quite frequently, then it doesn't meet its potential.

The NAIC has its ups and downs and I think it's in a down cycle right now. I think it's weakening the accreditation program. I think it's totally focused on the federal-state issues and sort of paranoid about the potential of federal involvement.

Why have there been so few people, like yourself, willing to publicly challenge the insurance industry?

When I started at NICO, I was it. Ralph Nader was a little involved in helping me get started. But now you have quite a few people working on insurance from a consumer perspective. I consider that one of our successes. There are probably about 20 groups working on it. I consider that a really important change.

I'm not necessarily critical anymore in terms of there being a presence on the other side. That makes me feel good.

How have your views of the insurance industry changed in the last decade?

I think they've made some improvements. I think the fallout from the cycle really shook them up. And the Prop. 103 thing shook them up.

They've reached out to consumer groups. They've started working on the question of their just being a passthrough; they're working on safety with us; they're working on anti-fraud measures.

It's been quite a breakthrough in working on some of these things.

I still think the industry falls way short of its promise. It still doesn't attract those bright, idealistic people out of college, but I think it's had a breakthrough.

I think a lot of it has to do with the cycle, with the fact that we were able to organize commercial interests to work with us on McCarran. Commercial interests joined us to say. "You guys need to be taught a lesson."

Ultimately, even AIA came over (to support reform of the McCarran-Ferguson Act). That was a shot across the bow and Prop. 103 was a shot across the bow.

Ten years ago, it was sort of a war all of the time. No matter what we said, the reaction was negative, particularly leading up to Prop 103. Lately, they're much more careful about reacting to what we say.

So, I think they've had to make some changes for the better, I think they have a long way to go.

What do you see on the horizon?

I think a review of whether there should be a greater federal role is inevitable. When is a very interesting question.

I can think of several things that could trigger it. Obviously a new batch of insolvencies, which could occur if you had a return of the cycle, which I think could happen. Not in the immediate future, but could. Democrats could come back.

You've got Dingell, who must be insulted about what happened with accreditation. I think they promised him stuff that they didn't deliver.