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Q&A: Howard Mills


N.Y. tenure 'invaluable'

Published Jan. 1, 2007

NEW YORK--Howard Mills is the newly appointed chief advisor, global insurance industry practice, of Deloitte & Touche L.L.P. and the outgoing New York superintendent of insurance. He and former New York Attorney General and Gov. Eliot Spitzer, stirred up the insurance industry over the past two years with investigations into broker compensation, finite reinsurance abuses and more. Mr. Mills spoke recently to Business Insurance Associate Editor Rupal Parekh about his time as an insurance regulator, his views on hotly debated industry issues and what's next for him professionally.

Q: What surprised you most about the industry when you became superintendent?

A: I became superintendent, obviously, at a time of tremendous tumult--contingent commissions, finite re, pending expiration of TRIA. It was just amazing to me how dynamic the industry was. To see it from the perspective of New York superintendent, one of the more prominent regulatory spots, was unique--to see everything just swirling around. It was a very pleasant surprise. It was so dynamic and so very interesting.

Q: Would you say that Eliot Spitzer's aggressive pursuit of wrongdoing by New York's insurers and brokers helped you or hurt you as the state's top insurance regulator?

A: I think that it was a help in that I was put into a position right at the outset where we were at the center of the driving issues of the day. I didn't always agree with Attorney General Spitzer on the way he handled things, but we ultimately formed a very effective partnership, worked together very collaboratively and at the end of the day, concluded a significant number of joint settlements--which really had a fundamental impact on the industry and also on the regulatory community.

Coming in from the perspective of never having been a regulator, I think was a benefit to me, and I didn't feel any need to make excuses for the past. I came in and said, 'Look, there's a reason that the attorney general is so actively involved in the insurance sector,' and part of that, regulators have to acknowledge, is that we hadn't drawn a clear enough path.

Take finite reinsurance for example: There were no clear rules that were readily understood and widely known. The regulatory community bears a responsibility for that, and we needed to do a better job of defining what the rules were for proper use and proper accounting of finite reinsurance, to give one example.

Q: What are some achievements during your tenure as superintendent of which you are proudest?

A: I'm proud of a lot of things that we've have done. Internally, we enacted some reforms that were very significant. We made a switch, under my direction, from the old periodic-exam formula to risk-based exams. I think that's the wave of the future. It helps us to use our resources better, but also helps us to spot problems in companies and correct them earlier.

We formed our corporate practices unit, which is a brand new unit, and that, in conjunction with risk-based exams, will enable us to spot issues where there is any criminal wrongdoing, get it to the attorney general faster and hopefully correct problems before they become full-blown crises.

We've done a lot of other good things on the consumer side, processed many cases and in many, many instances, gotten involved on behalf of consumers.

For big-picture items, I think that the New York department was very involved--and I like to think that I was very involved--in winning the extension of TRIA. I spent a lot of time in Congress last year, testified before both the House and the Senate several times, tried to be very vocal and a thought leader, and hopefully that will carry over in the new Congress, which has been very, very responsive and very receptive to the continued federal role in a terror backstop.

Q: Looking back, would you have done anything differently?

A: We really picked the most important issues, and I think that we've focused in the right areas.

I'm happy with the stand we took on natural catastrophe. I have not endorsed, as some have called on me to do, the ' model' of a national backstop for nat cat. I do think that the nat cat, very much unlike the terror market, has demonstrated the ability to deal with these very significant losses without a federal backstop.

I do think--and I've been very vocal on this--that we have a lot of work to do in preparing the county for megacatastrophes. I think that we should look at dedicated cat reserving, and the changes to the federal tax code that would make that possible. I wish we had been more successful in getting that through Congress. (Last year) was an election it was probably an impossible list, but look at what happened.... We (ended) 2006 with no hurricanes hitting the United terrorism attacks...and the industry making record profits. But how tragic it is that we didn't have the foresight to create the mechanisms to allow the industry and incentivize the industry to put aside some reserves so that you could take a year like 2006 and have the industry put some aside for the future, because we know the bad years are coming. And when they do, we won't have any of the reserves from 2006 made available, so all that money, when needed, will come from the federal treasury as it has in the past. That's a tragic lost opportunity. I wish we'd been more successful in getting some really common-sense reforms through the Congress for a national catastrophe approach that doesn't necessarily involve a federal backstop, but enables the industry to put aside it's own resources.

Q: What are the biggest challenges you see ahead for New York's commercial lines market?

A: The next superintendent will have to continue to watch the homeowners market and coastal exposures, obviously. We still have a strong market, it's readily available and affordable, but I think we need to be cognizant that one major storm could change that equation.

Reinsurance, once the Congress sends a clear signal on TRIA, should be available for terrorism cover.

The area that I think the state legislature and the next superintendent may be drawn to is one that I tried to impact, and that's the area of health insurance. The restoration of the right of prior approval for health rates is something that I tried to get through the state legislature, unsuccessfully, and I think that the next superintendent will deal with that.

Q: Any advice you can give the future superintendent?

A: The toughest part about this job is maintaining the proper balance. On the one hand, our critical mission is to protect the insurance consumer in New York, but right behind that--and you really can't say that it's even behind it because without the second you can't do the first--is to maintain a market and an environment that's conducive to the business. So you have to maintain the balance to protect the consumer but keep the marketplace strong. I don't know if you want to call it advice, but I would say that that's the primary challenge any superintendent will face.

Q: There has been a lot of dispute over state-based vs. federal regulation of the insurance industry. What are you views on "optional federal charter?"

A: We need to get a greater federal role in the regulation of insurance. There are some things that state-based regulation does do well--consumer issues are (handled) much better than a federal bureaucracy would ever do, and I think reserving, when done right, can be done very well by the states. But in the critical issue of establishing a conducive national market, there are many obstacles. And while it's gotten better, it's still not good enough. Speed-to-market, product approval, enabling companies to be responsive to consumer needs and innovate quickly--all of that needs a lot of work, and to make that a better situation, I do think we need some greater role from the feds. I don't think we'll ever get to the point where we've eliminated state insurance departments, but I certainly could see an optional federal charter for the life industry very easily. I just don't see what the problem with an optional federal charter for the life industry is at all. Property/casualty is a little more problematic because of climate, region and other factors. I do think that we need a greater enhanced role for the feds to act as the stick and really prod the states, and have the means to do so effectively when they are restricting the real flexibility you need in a strong national market.

Q: What's next for you professionally?

A: I'll be joining Deloitte & Touche, with the title of chief advisor, global insurance industry practice. I will be based in New York. It's a wonderful company, a wonderful firm.... They've got a very, very significant insurance practice and I'll be involved in that. I was entertaining a lot of offers and I was just very impressed with Deloitte--the culture of the firm, the dynamics of that role. I thought it was great because it is a very broad portfolio...similar to being the superintendent.

Q: What sorts of lessons might you bring to a private sector role?

A: I think that regulatory experience is invaluable at any level. The experience of having been the superintendent in New York is really unique. This really is, I think, the greatest and most experienced and certainly reputationally most prominent department in the United States. Great, great people I've had the privilege to work with and learn a lot from. I'm the first to admit that it was a very steep learning curve when I came in here, but to come into the New York department of the superintendent and get that perspective on the industry was unique, and I feel very fortunate.