In 2012, the New Mexico Legislature set in motion a process that fundamentally changed insurance regulation in New Mexico. This article will examine the legislative and electoral process that lead to the formation of the new Office of Superintendent of Insurance and will examine the unique aspects of this new insurance regulator.
- Insurance Regulation under the New Mexico Public Regulation Commission
There is no question that the recent changes in insurance regulation in New Mexico are due, at least in part, to the notoriety and problems associated with the New Mexico Public Regulation Commission (“PRC”). Since its first inception on January 1, 1999, the PRC has had a difficult history. This super-agency was the product of a constitutional ballot measure that passed in 1996 and subsequent implementing legislation. From the beginning, the scope of regulatory authority exercised by the agency was extraordinary. In addition to the regulation of insurance, the agency was charged with the regulation of public utilities electric, natural gas, renewable energy sources, telecommunications, water and wastewater systems, motor carriers, railroad safety, pipeline safety, ambulance standards, and oversight of the state fire marshal.[i]
During the period from 1999 (the beginning of the PRC) until 2012 (the creation of the Office of Superintendent of Insurance), the superagency had a colorful, and sometimes difficult, history.[ii] The following are some of the controversies that prompted the legislative initiative to change the PRC:
- On April 8, 2009, a grand jury indicted PRC Commissioner Jerome Block, Jr., on eight felony counts, and his father, former PRC commissioner Jerome Block, Sr., on four felony counts. The Blocks allegedly violated the election code by misusing taxpayer-supported public campaign funds in 2008.Prior to the indictments, the Secretary of State’s Office had ordered Block, Jr., to return $10,000 in public campaign funds and fined him $21,700 for lying on a campaign finance report.
- On July 23, 2009, PRC Commissioner Carol Sloan was charged with aggravated assault, aggravated burglary and criminal damage to property.Sloan was later convicted on two felony counts and removed from her position by the New Mexico Supreme Court after refusing to leave office.
- On August 10, 2011, four of the five PRC commissioners voted to remove Jerome Block, Jr., from his position as Vice Chairman following allegations that Block, Jr., had fraudulently used his state gas card as well as the gas cards of other PRC employees, driven a state vehicle for nearly a year after his license had been suspended, and was a suspect in a stolen vehicle investigation.
These problems were just a few of the public incidents that motivated the New Mexico Legislature to restructure the PRC. A major part of this restructuring was the proposal to remove insurance regulation from the PRC and create a stand-alone insurance regulator.
- Proposal for a Stand-Alone Agency
Because the PRC’s authority to regulate the business of insurance was granted by the New Mexico Constitution,[iii] creating a new stand-alone insurance regulator required that the New Mexico Constitution be amended to remove insurance regulation from the regulatory scope of the PRC. The initial proposal to create this stand-alone agency was a House of Representatives Joint Resolution.[iv] The joint resolution proposed to remove insurance from the constitutional authority of the PRC, thereby limiting PRC’s regulatory authority to only public utilities, including electric, natural gas and water companies, transportation companies, including common and contract carriers, transmission and pipeline companies, including telephone, telegraph and information transmission companies, and other public service companies. The joint resolution allowed the PRC to have responsibility for regulating insurance companies only until July 1, 2013,[v] and the joint resolution provided for the constitutional creation of the office of “superintendent of insurance” as of July 1, 2013.[vi]
The joint resolution proposed that the Superintendent of Insurance would have sole authority to regulate insurance companies and others engaged in risk assumption.[vii] One of the major issues for the proposal was the selection process for the Superintendent position. The joint resolution provided the Superintendent would be appointed by the insurance nominating committee and the Superintendent would serve for such terms as may be provided by law.[viii] The joint resolution also provided for the appointment of an insurance nominating committee, which shall have such qualifications as may be provided by law.[ix] Finally, the joint resolution required the proposal be submitted to the people for their approval or rejection at the next general election.[x]
In order the amend the PRC’s constitutional authority, the joint resolution required “a majority of all members elected to each of the two houses voting separately votes in favor.”[xi] Based on the PRC problems noted above and the continuing stream of bad press regarding the PRC, the House approved the joint resolution by a unanimous vote[xii]and the Senate approved the joint resolution with only two “no” votes.[xiii] Clearly, the Legislature believed that change in insurance regulation was necessary.
III. Approval of the Voters
After the passage of the joint resolution by the Legislature, the voters were the next hurdle for the creation of a stand-alone insurance regulator. The arguments for and against the constitutional amendment to create the Office of Superintendent of Insurance were varied.[xiv]
The primary argument in favor of the creation of the stand-alone agency was that insurance regulation is complicated and specific expertise was required. The main thrust of this argument was that the business of insurance should be overseen by an independent and qualified insurance regulator. In furtherance of this argument, supporters pointed to the complexity of the regulation of insurance, particularly in light of the recent enactment of the Patient Protection and Affordable Care Act. Supporters argued that insurance is one of the most complicated areas of public policy, actuarial science, and law. Supporters further argued that the PRC commissioners did not have the expertise necessary to properly oversee the decisions of the Superintendent of Insurance, and the stand-alone agency proposal was similar to the approach of 35 other states.
Another argument in favor of the creation of a stand-alone agency was that it would insulate insurance regulation from politics.[xv] While this argument may seem suspect at first glance, a closer analysis lends it some merit. The Insurance Division, while part of PRC, was subject to intense political pressures, and one way that this political pressure was exerted was through the hiring process. The National Association of Insurance Commissioners noted these hiring deficiencies during its accreditation review of the PRC’s Insurance Division and noted the Division’s inability to perform credible actuarial analyses and otherwise exercise meaningful oversight of the business of insurance.[xvi]
One of the more persuasive arguments in favor of creating a stand-alone agency was that PRC’s core function was regulating utilities, and by removing insurance regulation from its responsibilities, the PRC would be able focus on this core function.[xvii] Divesting the PRC of duties that were ancillary to its core function would allow the PRC to concentrate more effectively on the complex task of regulating public utilities. Additionally, although the PRC’s statutory structure gave the Insurance Division some independence, the creation of the stand-alone agency would remove any ambiguity that existed in law by creating a constitutionally independent Superintendent of Insurance.
The primary argument against the creation of the stand-alone agency was that it would remove accountability to voters. This accountability argument was based on the voters’ election of the PRC Commissioners and the PRC Commissioners’ oversight of insurance regulation. The creation of the stand-alone agency would move the Insurance Division away from this public scrutiny.[xviii]
After much consideration and debate, the voters went to the polls on November 6, 2012. When the counting was over 650,000, votes were cast, and the constitutional amendment passed by only 9,818 votes.[xix] The vote was 330,873 for the amendment (50.00%), and 321,055 against the amendment (49.00%). While this was not a large margin, the constitutional amendment, and the Legislature was then tasked with passing an enabling statute for the newly created agency.
- Office of Superintendent of Insurance
With the passage of the constitutional amendment on November 6, 2012, the New Mexico Legislature had to establish the statutory framework for the Office of Superintendent of Insurance.[xx] The bill, which established this framework, enjoyed bipartisan support.[xxi]
The new Office of Superintendent of Insurance is an adjunct agency.[xxii] The authority of the agency includes “all powers relating to state supervision of insurance, insurance rates and rate practices, together with collection of insurance licenses, taxes or fees, and all records pertaining to such supervision are under control of the office of superintendent of insurance."[xxiii] The position of Superintendent is a four year term.[xxiv] The compensation for the Superintendent places the position on par with cabinet level positions with New Mexico government.[xxv]
The PRC no longer appoints the Superintendent; instead the process is done by a committee.[xxvi] To ensure equity in the committee, there are nine members appointed by various government officials.[xxvii] Four members of the committee are selected by each of the New Mexico legislative council and the Governor; each must select two members representing the interests of the insurance industry, and two members representing the interests of insurance consumers.[xxviii] These consumer members may not be employed by or on behalf of or have a contract with an employer that is regulated by the Office of Superintendent of Insurance.[xxix] The ninth member of the committee, who is also the chair of the committee, is selected by a majority vote of the other eight members. The ninth member must be either a former New Mexico Superintendent of Insurance, or another person with extensive knowledge of insurance regulation in New Mexico.[xxx] A majority vote of all members of the committee must vote in favor of an applicant in order for that applicant to be appointed Superintendent.[xxxi]
The Superintendent is no longer subject to the political impulses of the PRC and may only be removed for incompetence, willful neglect of duty or malfeasance in office.[xxxii] To ensure the absence of improprieties, the Superintendent and/or his family members are prohibited from any direct financial interest in an insurer, insurance agency or insurance transaction,[xxxiii] and a required annual report is given to the Legislature, to the insurance nominating committee and to the Governor on the activities of the Office of Superintendent of Insurance.[xxxiv]
[i] N.M. Const. article XI, § 2 (1996, amended 2012 to remove insurance oversight) (“The public regulation commission shall have responsibility for chartering and regulating business corporations in such manner as the legislature shall provide. The commission shall have responsibility for regulating public utilities, including electric, natural gas and water companies; transportation companies, including common and contract carriers; transmission and pipeline companies, including telephone, telegraph and information transmission companies; insurance companies and others engaged in risk assumption and other public service companies in such manner as the legislature shall provide.”); see also NMSA 1978, § 8-8-1 to -21 (1998, as amended through 2013).
[ii] Rethinking the PRC, Think New Mexico, (2011), http://www.thinknewmexico.org/pdfs/PRCReport.pdf.
[iii] N.M. Const. article XI, § 2 (1996, amended 2012).
[iv] H.R.J. Res. 17, 50th Leg., 2d Sess. (N.M. 2012).
[v] Id. at § 1.
[vi] Id. at § 2.
[x] Id. at § 3.
[xi] N.M. Const. article XIX, § 1 (1996).
[xii] See N.M. House Voting Report HJR 17, available athttp://www.nmlegis.gov/Sessions/12%20regular/votes/HJR17HVOTE.pdf.
[xiii] See N.M. Senate Voting Report HJR 17, available athttp://www.nmlegis.gov/Sessions/12%20regular/votes/HJR17SVOTE.pdf.
[xiv] See, Brief Analysis And Arguments For And Against The Constitutional Amendments Proposed By The Legislature In 2011 And 2012, New Mexico Legislative Council Service, available athttp://www.nmlegis.gov/lcs/lcsdocs/CAs%20FOR%20AND%20AGAINST%202012.pdf.
[xv] Id. at 22.
[xvii] Id. at 23.
[xviii] Id.at 24.
[xix] N.M. 2012 Election Results, available athttp://sos.state.nm.us/uploads/files/Pages%20from%20ALLNMG12%20CAN%20STATEWIDE.pdf.
[xx] N.M. Const. article XI, § 20 (2013). (“A. The office of “superintendent of insurance” is created as of July 1, 2013. The superintendent of insurance shall regulate insurance companies and others engaged in risk assumption in such manner as provided by law. The superintendent of insurance shall be appointed by the insurance nominating committee and serve for such terms as may be provided by law; provided that the term of the first superintendent of insurance appointed pursuant to this 2012 amendment shall begin on July 1, 2013 and end on December 31, 2015. B. The insurance nominating committee shall be appointed and have such qualifications as may be provided by law. The insurance nominating committee shall evaluate applications for superintendent of insurance in accordance with qualifications for superintendent of insurance established by law.”).
[xxi] See H.R. Res. 45, 51st Leg. Sess. (N.M. 2013).
[xxii] NMSA 1978, § 59A-2-1(A) (2013) (“The office of superintendent of insurance, created as of July 1, 2013 by Article 11, Section 20 of the constitution of New Mexico, is an adjunct agency pursuant to Section 9-1-6 NMSA 1978.”).
[xxiii] NMSA 1978, 59A-2-1(B) (2013).
[xxiv] NMSA 1978, § 59A-2-2(C) (2013) (“The superintendent shall serve for a term of four years, except that the initial term beginning July 1, 2013 shall end on December 31, 2015.”).
[xxv] NMSA 1978, § 59A-2-2(D) (2013) (“The superintendent’s annual compensation shall be established by the legislature in an appropriations act and shall be no lower than that of the lowest-compensated cabinet secretary and no higher than that of the highest-compensated cabinet secretary.”).
[xxvi] NMSA 1978, § 59A-2-2(B) (2013) (“The superintendent shall be appointed by the insurance nominating committee.”).
[xxvii] NMSA 1978, § 59A-2-2.1(A) (2013) (“The “insurance nominating committee” is created and consists of