ANNAPOLIS — Comparing Maryland’s auto insurer of last resort to big Wall Street banks who used federal bailout money for bonuses and other extravagances, a state Senate panel grilled the state agency over how it uses its funding provided by policyholders.

The Senate Finance Committee held its first hearing on SB 238 March 16.

The bill would prohibit the Maryland Automobile Insurance Fund from using its budget for specified bonuses, services, events and sponsorships.

The bill comes following an audit of the quasi-governmental agency where it was unveiled that $1.4 million in bonuses was permitted for 400 MAIF employees, following $19.6 million in losses. MAIF’s board decided to defer necessary rate increases and change one of its pay policies to enable employees to qualify for bonuses.

That move did not sit well with one of the 10 sponsors of the bill, Sen. John C. Astle (D-Anne Arundel). He questioned spending by the insurer, including a 2006 “producer party” with dinner and a speech by former Baltimore Oriole Frank Robinson, as well as $30,000 in charity donations and a five-year, $100,000 pledge to support the Maryland Highway Safety Foundation.

MAIF, created and governed under Maryland law, was established to provide coverage for those who cannot secure private insurance. But Astle said the agency has gone far beyond its statutory limitations.

“We have an agency that has gotten aggressive and stepped outside the lawful boundaries set up,” he said. “I want to ensure it is run in a way outlined in the founding statute…I’m concerned with the governance of MAIF.”

Legislators zero in on $1.4 million in bonuses

Derrick L. Davis

Derrick L. Davis, MAIF’s recently-elected board chairman, told legislators that the agency receives no state funds – yet is held to state standards, including state-ordered furloughs. It provides bonuses that “considerably less” than in the private insurance market, does not advertise through television and radio like its private counterparts and has no dedicated agents.

Davis also defended the use of $74,000 for lobbying services, adding that when legislation comes forward impacting the agency, “we need to let our voices be heard as well.”

Astle called the lobbying money “troubling,” adding that if there is a bill that affects MAIF, there is representation: state legislators.

“You take the direction of the General Assembly,” he said. “We decide how you operate and using premium money [for lobbying] is a little outside the pail.”

Davis added that the bonuses in question, which will not be repeated in 2010 and 2011, are based on a combined ratio – the amount coming in through premiums and out through claims – not growth, like other private insurers, since MAIF policies are mandated for drivers who cannot secure other coverage.

Sen. Nathaniel Exum (D-Prince George’s) asked Davis if he remembered the “outrage” by the American public over banks receiving federal Troubled Asset Relief Program (TARP) funding, only to dole out big bonuses and lavish parties, asking how that relates to Maryland policyholders having their cash used for similar items.

Davis said he understood that MAIF is “looking forward” and later admitted “sure,” that perhaps the agency made a mistake regarding the bonus distribution when pressed by Exum.

Davis was also grilled by Sen. George W. Della Jr. (D-Baltimore City), who scolded the agency for changing its policy to allow the bonuses, asking repeatedly if it was MAIF Executive Director M. Kent Krabbe who suggested the strategy. According to data provided by MAIF to the Senate panel, Krabbe received the most out of the $1.4 million in bonuses at $36,706.

While Davis said the recommendation came from “staff,” Della continually pressed, asking “who” brought the idea to the board.

“The executive director would present that information to the table,” Davis said.

Astle offered several amendments to the proposed legislation, including limits on board members and adding language to the state statute that members must “act in good faith,” mirroring language the General Assembly used in redefining the mission of nonprofit health insurer CareFirst BlueCross BlueShield a few years ago.

No vote was taken on the proposed legislation, so the amendments could be reviewed.