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Michael A. Molony, Esq.
YOUNG, CLEMENT, RIVERS, LLP
(843) 724-6631
T. Douglas Concannon, Esq.
YOUNG CLEMENT RIVERS, LLP
(843) 724-6640

INTERVIEW WITH SOUTH CAROLINA DIRECTOR OF INSURANCE RAYMOND G. FARMER

The South Carolina Director of Insurance will assume the role of President of the National Association of Insurance Commissioners (“NAIC”) on January 1, 2020.  This is a significant achievement as it has been almost 20 years since the last time a South Carolina Director, Ernie Csiszar, was elevated to the post.  It is an especially impressive achievement given the fact that South Carolina has very few large domestic insurers and is a testament to Director Farmer’s unique talents and capabilities.  

Director Farmer has a long history of public service as well as insurance regulatory experience, 50 years to be exact.  He earned a bachelor’s degree in Insurance from the University of Southern Mississippi and a law degree from Atlanta’s John Marshall Law School.  While planning to retire after 33 years at the American Insurance Association, he received a call from Governor Nikki Haley to serve as Director for the South Carolina Department of Insurance in November of 2012. In 2017, Director Farmer received The Order of the Palmetto from Governor Haley, the state's highest civilian honor awarded to citizens of South Carolina for extraordinary lifetime service and achievements of national or statewide significance.   When Governor McMaster took office in 2017, he asked Director Farmer to continue and has expressed great confidence in his administrative abilities and unique policies for the development and welfare of employees of the Department of Insurance. 

As Director, he has focused on growing and regulating the state’s insurance industry fairly, helping and protecting consumers, and generating competition in the marketplace by increasing the number of insurance companies in the state.  Under his leadership, the Department of Insurance has recruited and added more than 80 new property insurers, developed an online consumer Market Assistance program, and automated its entire system for consumer services and licensing to provide easier access for businesses and consumers alike.  Director Farmer led the NAIC’s efforts in developing a new model act to address rising cybersecurity issues and consumer concerns about the preservation and privacy of their personal information in the face of the growing number and size of corporate data breaches.  In 2018, Director Farmer oversaw the passing of the South Carolina Insurance Data Security Act – a law that is the first in the nation to require insurance companies to have a comprehensive and secure plan to protect consumer data.  

Director Farmer took time from his busy schedule to sit down and share his thoughts about his upcoming term as President of the NAIC.  During the upcoming year, the Director will be confronted with a number of different and multi-faceted issues, however the three main areas of focus will be on risk resiliency, private flood insurance and long-term care insurance.  

The objective of risk resilience is to help ensure people can overcome a potentially catastrophic event and return to normal life as quickly and effectively as possible.  It is one of the most talked-about topics today in the field of disaster prevention and management.  While the insurance industry is not directly involved in catastrophe management or in mitigating the frequency or severity of natural hazards themselves, we do help reduce these types of risk by enabling communities and individuals to manage exposure and reduce vulnerability.  Insurance plays a key role in this context, since it contributes to prompt and reliable financing of recovery measures.  South Carolina is no stranger to natural disasters with five weather related events in the last five years.  Each state is faced with its own national disasters, from wildfires to hurricanes to tornadoes to earthquakes.  This is obviously a topic with innumerable facets and education of our consumers is key.  No matter the type of disaster, it is important that all consumers be educated on how to plan, prepare and protect their home and family.  The less a society is affected by an extreme event, the faster it can get back on its feet.  The more losses are insured, the less of a decline there will be in economic output following a natural disaster, and therefore the faster the country can recover.

Flood insurance is a major issue, not only in my home state of South Carolina, but also nationwide.  According to FEMA, at some point over the last ten years, all 50 states have experienced floods.  Worldwide, floods are the most costly natural disaster and have affected the largest number of people.  Flood events are predicted to increase in frequency and/or severity in certain locations as the climate warms, requiring a new level of understanding and awareness about how communities and households can be more resilient.  Under 10% of people in South Carolina have flood insurance and most do not know that it is not covered under their homeowner’s policy.  The National Flood Insurance Program already is overtaxed and grossly underfunded.  I’m afraid it will become even more so as new flood zone maps from FEMA are adopted and implemented by local governments.  Some current maps are as much as 30 years old and do not anticipate the accumulating effects of population shifts, property developments, and climate change.  The Department of Insurance will propose legislation in the upcoming session to encourage the private insurance market to write flood insurance in completion with the NFIP in South Carolina.  

Long-term care insurance is one of the biggest issues facing the industry these days.  Many people will need long-term care at some point in their lives, and long-term care insurance plans ostensibly help to offset those high costs.  Unfortunately, decades ago, companies oversold and underpriced the product.  At the same time, long-term care costs have risen sharply.  They are now more than 10 times what they were in the 1970s and the current premiums are not sufficient to cover losses.  In the last several years, we’ve seen rate increase requests that are astronomical, some upwards of 80 percent.  As insurers lost money, they began to drop out of the market.  Of the 100 or so companies that were selling long-term care insurance in the United States at one point, there are less than a dozen selling these plans now.  Then you have consumer expectations for policies, which were based on industry promises that simply could not be kept, like premiums would never increase.  Instead, consumers now face the choice of paying constantly increasing premiums or facing greatly depreciated insurance.  The policy promises need to be fulfilled, as regulators must maintain the consumer confidence in long-term care products.  But those who might consider buying it now have fewer and less attractive options.  The NAIC is tackling this national issue with a high-level commissioner-only task force to address the multiple issues of long-term care insurance.  

Finally, Director Farmer intends to continue in his role as head of the South Carolina Department of Insurance.  In addition to regulating the insurance industry on a daily basis, Governor McMaster announced the Department of Insurance as the lead agency in administering South Carolina’s approximately $34 million allocation under the Volkswagen Settlement.  Governor McMaster determined that the Department of Insurance would be the appropriate agency to handle the matter, since it had no regulatory authority over any aspect of the Volkswagen Settlement.  Pursuant to the settlement order, a trustee was appointed and rigid criteria were implemented for the distribution of these funds.  To date, the Department has distributed approximately $10 million, and an additional sum will be made available in the near future. 

 

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