January 12, 2010

State auto insurer defends spending, bonuses

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By Len Lazarick
Len@MarylandReporter.com

Officials with the Maryland Automobile Insurance Fund defended their spending and staff bonuses to legislators on the joint audit committee Monday.

In a December report, state auditors were highly critical of $1.4 million in bonuses paid out to management and staff at the quasi-public agency for motorists who can’t get coverage anywhere else in 2008. That year, the insurer lost $20 million.

The audit also criticized MAIF spending $250,000 on consultants, marketing and lobbying, as well as on a $15,000 “appreciation” dinner for agents who refer clients.

The MAIF board had scaled back its financial goals in 2008, allowing bonuses to be awarded despite the losses. Otherwise, the staff of about 400 would have earned only about $250,000 in extra pay.

MAIF board members said the goals were adjusted because they were trying to keep rates low in difficult times, resulting in a loss.

“MAIF decided to forego rate increases to keep as many drivers insured … and maintain its core purpose,” said John Rowland, a representative of Allstate Insurance who served as MAIF board chairman. During the first half of 2008, the board recognized that “many of its insured would be struggling to meet day-to-day needs,” Rowland said.

“I think we are looking at our ratepayers more than we are looking at our livelihood,” said Dereck Davis, incoming board chairman of MAIF.

Some members of the audit committee were skeptical. Sen. John Astle, D-Anne Arundel, a longtime critic of MAIF, said the agency was supposed to be the government-sponsored insurer of last resort, but instead was trying to operate as a regular insurance company.

Drivers must be turned down for insurance by two commercial insurance companies before MAIF can insure them.

Del. Susan Aumann, R-Baltimore County, said the executives were “greedy” to accept the bonuses. The top 30 managers and executives got an average of $12,000 each, Del. Charles Barkley, D-Montgomery, noted.

Astle was also critical of the other expenses, particularly $74,000 spent on independent lobbyists, even though MAIF has its own in-house government relations staff.

“Is it that you don’t trust your legislative guys?” Astle asked the MAIF officials. “There are plenty of advocates for your side.”

The lobbyists were hired in an unsuccessful attempt to help pass legislation allowing clients to pay for their often expensive insurance in installments directly to MAIF. Currently, the clients must finance their lump-sum annual payments through premium finance companies, which are fighting to keep the business.

“That form of financing substantially raises the cost,” said MAIF executive director Kent Krabbe. He said a dozen lobbyists were paid more than $400,000 to defeat the bill.

“Our policy holders don’t have a voice,” Krabbe said.

Three African American senators from Baltimore City on the audit committee sided with Krabbe and defended MAIF. “You are going against Goliath,” said Sen. Verna Jones, a Democrat and Senate chairwoman of the committee.

Sen. Nathaniel McFadden, D-Baltimore, said the lobbyists for the insurance premium companies were “all over the place,” lined up to talk to senators.

Sen. Catherine Pugh, another city Democrat, said she planned to introduce legislation again this year to permit installment payments to MAIF.

“You’ve got folks who don’t believe that MAIF should be pushing for its constituency,” Pugh said in an interview. “I think people don’t understand this industry.”

On the audit report, she said, “I didn’t find bonuses to be an issue.”

Astle said he would introduce a bill to prohibit the kind of spending auditors identified.

“They’re an arm of the government,” Astle said. “They don’t represent the policy holders. We [legislators] represent policy holders.”

If premium finance companies are shut out of the MAIF business, “there are some businesses that are going to be gone.”

MAIF receives no money from state government and is entirely financed by motorist premiums and income from investments accumulated from those premiums.

Krabbe said MAIF employees, who are state workers, did not get any bonuses in 2009, and would not receive any this year or next, a policy now set in law.

Bryson Popham, one of the lobbyists for the insurance premium companies said his clients have some ongoing issues. Among them is a lawsuit appealing the insurance commissioner’s ruling on interest calculations that would take away about a third of the income of the finance companies.