A bill prohibiting specific uses of funds from the Maryland Automobile Insurance Fund may not have been acted upon this year, but the anger by state legislators is likely to result in the matter being revisited in the next General Assembly session.

After convening a workgroup of legislators and stakeholders to reach an accord on SB 238, the Senate Finance Committee decided not to act on the bill this year. The measure sought to stop the state’s auto insurer of last resort from using its budget for specified bonuses, services, events and sponsorships.

The legislation was proposed following a state audit of the quasi-governmental agency. The audit found that MAIF paid $1.4 million in bonuses for 400 employees following a year where it recorded $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, the agency said.

One of the bill’s sponsors, Sen. John C. Astle (D-Anne Arundel) questioned several spending practices of the insurer, including a “producer dinner” for top sellers and a combined $130,000 in charity donations.

An ‘aggressive’ agency

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.

Derrick L. Davis

“We have an agency that has gotten aggressive and stepped outside the lawful boundaries set up,” he said. “I’m concerned with the governance of MAIF.”

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 “considerably less” than in the private insurance market, and does not advertise through television and radio like its private counterparts.

Davis added that the bonuses in question, were 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) compared MAIF to large Wall Street firms getting government bailout funds only to turn around and reward its executives. Sen. George W. Della Jr. (D-Baltimore City) demanded Davis reveal who brought the idea of bonuses to MAIF’s board of directors.

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

According to records supplied by MAIF, its executive director, M. Kent Krabbe, received a $36,706 bonus, the largest share of the $1.4 million in total bonuses.

Bryson Popham, a lobbyist who testified in favor of the bill on behalf of his client, Agency Insurance Co., said he was part of the workgroup to resolve the bill, but it was decided to defer action until next year. Agency Insurance Co. is a competitor with MAIF for auto policies in the state.

“A number of legislators have been highly critical of MAIF’s practices related to the payment of bonuses at a time when the state is struggling financially and in a year where [the insurer] lost a particularly large amount of money,” he told IFAwebnews.com.

// MAIF installments plan fails again this session

After another year of debate, a plan to have participants in the Maryland Automobile Insurance Fund pay monthly installments versus a lump sum for coverage failed.
SB 401sought to save policyholders from interest payments and fees paid to premium finance companies.
The Maryland Insurance Council opposed the bill before the Senate Finance Committee, with its attorney Jay Schwartz, accusing the MIA of lobbing “a hand grenade” into negotiations: a lawsuit by former state insurance commissioner Ralph S. Tyler.
The MIA and nine premium finance companies are awaiting a Court of Special Appeals decision on whether the firms improperly calculated interest on policies which Tyler claimed they did.
“[This case] was an attempt to force us into a deal on this bill,” Schwartz claimed.”It was wrong.”

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