The executive director of the Maryland Automobile Insurance Fund said there is “a misunderstanding” among the sponsors of a state Senate bill that would restrict the use of funds by the state’s auto insurer of last resort.

M. Kent Krabbe

Ten senators have signed on to SB 238, which would prohibit MAIF property or money from being used for specified bonuses, services, events and sponsorships, according to the text of the bill.

The proposed legislation comes after criticism last year from a Maryland state auditor and a joint audit committee over $1.4 million in bonuses for 400 of the agency’s employees in 2008 in light of $19.6 million in losses last year.

MAIF Executive Director M. Kent Krabbe defended the raises, indicating that the agency chose in mid- and late-2008 to defer necessary rate increases, thus preventing staff from meeting financial targets. Rather than penalize employees for a situation caused by the economy, Krabbe said, MAIF’s board allowed reduced bonus payments that did not include state tax dollars or state funds.

No bonuses are to be paid this year, he added.

Funds used appropriately, agency says

Krabbe told IFAwebnews.com that MAIF “firmly” believes “that there is a misunderstanding among the sponsors of SB 238” regarding the resources the agency uses to reach its goals.

“MAIF has never advertised in any traditional sense; our business is supported completely through the word of mouth of our producers,” he said in a statement. “Without some of the resources currently at our disposal MAIF would be unable to educate its producers, legislators, and the public about important issues like the MAIF installment option, uninsured drivers and driver safety.”

Krabbe added that MAIF looks forward to sitting with the bill’s sponsors and other General Assembly members “to more thoroughly explain the important service that MAIF provides to all Marylanders and why we need a array of tools at our fingertips to get the job done.”

None of the bill’s sponsors contacted by IFAwebnews.com responded to a request to comment on the proposed legislation. A hearing on the bill is scheduled for March 16 by the Senate Finance Committee.

In addition to SB 238, Sen. Catherine Pugh (D-Baltimore City) has filed a bill (SB 401) allowing MAIF to accept premiums on an installment basis rather than in one lump sum, forcing agreements with premium finance companies.

The measure, which had the support of former Maryland Insurance Commissioner Ralph S. Tyler, has failed in the General Assembly over the past few years.

Pugh’s bill would also require the state’s insurance commissioner to ensure specified provisions of MAIF’s installment payment plan and prohibit MAIF from paying a higher commission to specified producers, according to the text of the proposed legislation.

This story originally appeared in the March 2010 print edition of Insurance & Financial Advisor.