From the Philadelphia Inquirer, Feb 26, 1999 Front Page

Key Pa. lawmakers have direct ties to insurance industry

By B.J. Phillips and Ken Dilanian INQUIRER STAFF WRITERS

Insurance.

Is there anything more boring?

"Most people fall asleep in front of my eyes when I say I'm on the insurance
committee," says Rep. John Lawless (R., Montgomery), secretary of the
insurance committee of the Pennsylvania House of Representatives.

Consumers may sleep through the legislative process that regulates the
insurance business, but the lobbyists are wide awake.

And in Harrisburg, all the insurance lobbyists represent the insurance
industry and those who profit from it; there are no lobbyists representing
consumers.

More important, the insurance industry may have little need for lobbyists
when it comes to the Pennsylvania legislature. The reason: Nearly 10 percent
of Pennsylvania's 253 legislators who served in the session that ended last
December had direct ties to the insurance industry. Some are insurance
agents, some own insurance companies, and some are lawyers representing
insurance companies.

Public disclosure records show that in the House, five of the 22
representatives (18 percent) who sat on the committee that regulates
insurance have personal business ties to the insurance industry. In the
Senate, five of the 14 (38 percent) senators on the insurance committee have
ties to the industry.

Six legislators sitting on the insurance committees -- three in the House,
three in the Senate -- have been insurance agents.

The disclosure statements also show that none of the 36 House and Senate
insurance committee members has ever been a consumer advocate. Only one
legislator among the 50 senators and 203 members of the House lists consumer
represen tation as a credential for holding public office.

Campaign-finance records show that lobbyists for the insurance industry
donate large amounts of money to key members of the House and Senate. Scores
of other special-interest groups who profit from health-care, auto-repair
and other industries dependent on the insurance system also contribute.

So much insurance-related campaign money goes to Harrisburg that legislators
seek what they call "deep-pockets appointments" to the two insurance
oversight committees. The chairmen of the House and Senate insurance
committees, in particular, receive tens of thousands of dollars from
insurers and the scores of businesses and professions that depend on
insurance for a livelihood.

"Sometimes it seems like half of Harrisburg lobbies the insurance
committee," says Rick Speese, the Democrats' top staff analyst on the House
insurance committee. "Other times it seems like all of Harrisburg lobbies
the insurance committee."

So much effort is put into lobbying state legislators because there is no
federal oversight of the insurance industry; all regulation comes from the
state alone.

Sen. Edwin G. Holl (R., Montgomery) is chairman of the Senate Banking and
Insurance Committee. Holl's campaign finance disclosures indicate that he
received $171,640 from PACs since 1993. Of that, $79,750 came from PACs
representing various insurance interests. In all, 47 percent of Holl's
contributions from PACs came from insurance-related sources.

"It [ the contributions ] hasn't affected my work on insurance matters,"
Holl says. "None of that money can go into my pocket. Besides, there's so
much scrutiny, I don't think I could do anything wrong if I tried."

Holl acknowledges that he works closely with industry lobbyists because they
are "a valuable source of information. Often they come up with ideas that
help reduce costs. They just want to come in, sit down and give you their
point of view."

Nicholas A. Micozzie (R., Delaware) is the chairman of the House insurance
committee. Since 1995, Micozzie has received $58,000 from insurance-related
PACs -- 50 percent of his PAC donations.

The money has not affected his actions, Micozzie says. He points out that he
did vote against industry objections to several portions of an HMO-reform
bill that passed last year. He also said he has voted in favor of several
health-insurance measures helping consumers, including the "patients' bill
of rights."

"As chairman, I can sit on a bill until the cows come home," Micozzie says.
"But all of these bills went up for a vote."

Others who work for the legislative insurance committees see the one-sided
nature of the industry presence as a potential problem.

House staffer Speese says, "There's nobody to call for the consumer view.
It's very hard to argue their viewpoint when you don't even have one letter
from a policyholder to wave at members." Melissa Gizzi, executive director
of the Senate Banking and Insurance Committee and Holl's top Republican
staff person, says: "There isn't a lobby for the insureds, as opposed to
insurers."

Samuel Marshall, president-elect of the Insurance Federation of
Pennsylvania, said the insurance industry did not have too much influence in
Harrisburg. "We wish there were more legislators who had experience in it,"
he said. "Ours is a complicated industry, and it's easy for critics to cast
every issue as industry versus consumer. If consumers think you're ripping
them off, they'll rip you off."

The insurance industry is one of the giants of corporate America -- in
Pennsylvania alone, policyholders paid $31.8 billion in premiums in 1997 for
all types of insurance.

There is no federal oversight of insurance because the industry pushed a
bill through Congress in the waning days of World War II that exempted the
insurance business from federal regulation.

State ethics rules do not prohibit legislators from voting on issues that
directly affect the businesses for which they work, so long as any benefits
of that legislation benefit everyone in a similar position.

The largest life-insurance scandal in recent Pennsylvania history was
detected in 1994, when the state fined Metropolitan Life Insurance Co. for
siphoning money from 44,000 Pennsylvania policyholders.

Met Life agents persuaded policyholders to buy additional, more expensive
life-insurance policies or to convert existing policies into annuities --
which, unknown to policyholders, earned the agents large commissions.

The insurance agents were able to fool so many consumers because they used
projections -- generally wildly optimistic -- about how well policyholders'
investments in the annuities would perform. When the annuities earned a
lower rate of return than projected, policyholders had to make up the
difference with increased premiums, or they risked losing their investment
entirely.

When the state's Insurance Department learned of the scheme, it levied the
largest fine in Pennsylvania history, $1.5 million.

Another outcome of the case was that the Casey administration drafted
legislation to protect consumers from dishonest life-insurance practices.

"This is such a consumer-friendly bill that the legislature will be
hard-pressed to be against this," Cynthia Maleski, the state insurance
commissioner at the time, predicted when she introduced the legislation on
March 11, 1994.

Three months later, Maleski says, she was shocked to see what had happened
to the bill once it went to the Capitol.

The bill, which had been endorsed by the governor, was the subject of an
intense letter-writing campaign by agents; the proposal would have required
them to disclose their commissions if policyholders agreed to buy new
policies or annuities.

After "a stack of letters eight feet high" came in, staffer Speese said,
"that proposal was dead in the water. Policyholders may not like it, but
they didn't write their legislators. That's democracy. As far as they could
tell, legislators just did the will of the people."

The bill was further weakened when a "substitute" version based on a draft
provided by the Life Underwriters Association and endorsed by the insurance
industry was sent to the floor instead of the Casey administration proposal.

The version that emerged from the Senate insurance committee excised
completely the requirement for agents to disclose their commissions. In
addition, the Maleski bill contained a provision that sharply limited the
use of projections that mislead policyholders by exaggerating the income
they will earn from annuities. The bill that came out of the committee
included weaker limitations on the use of projections.

Marshall, of the Insurance Federation, said the Maleski bill was
"indecipherable and unmanageable." He said the rewritten bill was in the
best interests of consumers.

When it went to the floor of the Senate, the substitute bill passed
unanimously. A bill that Maleski considers "toothless" then became law. To
this day, it is still legal for agents in Pennsylvania to continue some of
the practices that led to the Met Life scandal.

"I had no idea how many people in the legislature are former agents or are
tied to the industry financially," Maleski said when her bill was defeated.

Five years later, Maleski still believes the reform bill "should have been a
shoo-in" and marvels at the muscle of a lobby built into the legislature via
lawmakers who have professional or financial ties to the insurance industry.

"Their loyalty to the industry crossed all the usual political lines --
Democrat/Republican, rural/urban, you name it," Maleski said. "The insurance
connection was what mattered most. "

Legislators have pushed through consumer-oriented reforms, particularly in
health care, where cost-cutting can cost lives. But it is often an uphill
battle, with snares at every turn.

Sen. Allyson Schwartz (D., Phila.), a member of the Senate insurance
committee, recalls that she sponsored a bill that would require medical
insurers to cover annual gynecological exams for women. The insurance
coverage would include Pap smears to screen for cervical cancer.

For many healthy women, a gynecological examination is their only contact
with a doctor over the course of a year, and thus it is an early warning for
detection of a wide range of medical problems. Since annual exams entail the
cost of an office visit, gynecological checkups are relatively expensive for
insurers. They are also relatively expensive for many Pennsylvania women who
cannot afford the exams unless their health insurance pays all or most of
the bill.

Schwartz, who was not then a member of the insurance committee, said she was
shocked to discover that the wording of the bill had changed drastically.

Sen. Holl had put in new language that did not require insurance companies
to pay for the full gynecological exam, just for Pap smears.

"The $5 lab cost for Pap smears wasn't really the issue," Schwartz recalled.
"It was the cost of a full gynecological examination and all the things,
including a number of cancer screenings, that take place during an exam that
the companies didn't want to pay for. Fortunately, we caught the change in
time."

Holl declined to return calls in the past week to discuss this bill.

She managed to get Holl's Pap-smear amendment defeated, but it was inserted
again when the bill finally came to a vote on the floor. Once again,
Schwartz caught the omission and the bill finally passed.

Schwartz said that the last-minute reintroduction of the Pap-smear amendment
showed that the industry can find every pressure point during a bill's long
journey into law.

"The industry definitely talks to certain people to get things they want put
into bills," Schwartz said. "They can get changes made almost anywhere -- in
the rules committee, in the appropriations committee, on the floor,
anywhere."

Far from considering their ties to the insurance industry a conflict, many
legislators say they believe their colleagues value their experience and
knowledge of the industry.

Rep. Roy Reinard (R., Bucks) sits on the House insurance committee. He
co-owns a third-generation insurance agency that offers all types of
insurance. Reinard, who is still active in an insurance business, said he
brought to the committee technical knowledge that took years to acquire. He
said he saw no conflict in his dual role as "legislator and practicing
insurance agent." He added: "The consumer is the one I work for when I'm
wearing both hats."

It would be "foolish," he said, for the legislature to waste the expertise
of members.

"Why exclude the very people who know the most about a subject?" he asked.
"I'm a firm believer in the citizen legislature, and I only wish we had more
professions represented in Harrisburg."

Rep. Larry Sather (R., Blair and Huntingdon) also sits on the House
insurance committee. He was a life-insurance agent for Met Life before he
went into politics and is no longer active as an insurance agent. He feels
strongly that his background serves as a boon to consumers.

"I know how insurance companies think," Sather says. "Who better to ask some
of the questions that need asking? My background has been helpful, and I
think my record shows it."

In fact, most legislators gravitate toward committees related to their
previous jobs and experiences. Farmers ask for the agriculture committees,
lawyers want judiciary, and teachers usually request appointment to
education committees.

Sometimes, the public can be affected as much by bills that are not
introduced as they are by those that are voted into law.

One proposal that has never made it to the floor of the Pennsylvania
legislature is a bill that would establish an independent consumer advocate
for insurance issues. A series of legislators have offered consumer-advocate
legislation over the years. The most recent sponsor was former Sen. Ivan
Itkin (D., Allegheny), who has tried since 1994 to get a bill passed.

No consumer-advocate bill made it out of the insurance committee.

Itkin's proposal would establish an office similar to the one that
represents consumers before the Public Utility Commission. It would analyze
rate-increase requests and provide advice to legislators on the impact of
proposed legislation on policyholders and other insurance consumers. Funding
for the office would come from a levy on insurance companies, similar to the
one that raises $12.5 million a year for authorities to combat auto theft
and insurance fraud.

The proposal has the backing of virtually every Democrat on both committees.
But Republican members -- and more important, the two Republican committee
chairmen -- oppose the bill.

"It just adds bureaucracy," Micozzie said, "and I really don't think it's
necessary because we get input from everyone involved before these bills
come to the floor" for a vote.

Holl is also opposed, saying: "The Insurance Department is there to see to
the interests of the consumers. They do a very fine job of protecting
consumer interests."

Rep. Kathy Manderino (D., Phila.) disagrees. She pointed out that the last
two commissioners worked for insurance companies before their appointment to
the top post regulating those companies. She said there was a persistent
bias within the department toward industry interests.

The last four commissioners have worked for or represented insurance
companies either before or after serving their government posts.

"The Insurance Department is supposed to protect the interest of consumers,"
Manderino said. "But when they testify in hearings, it sounds as though the
IFP [ Insurance Federation of Pennsylvania ] wrote their speeches." The
insurance lobby is at its most powerful when it comes to what appears to be
dull, procedural issues that even many lawmakers do not understand. That is
when its cultivation of key members -- committee chairmen who can rush a
bill to the floor without hearings, leaders who can give the green light to
last-minute amendments, also without debate -- can yield the biggest
dividends.

Two prime examples were bills passed in 1995 and late 1998 -- both written
almost entirely by lobbyists for mutual insurance companies.

The 1995 bill allowed a change in corporate structure for mutual insurance
companies based in Pennsylvania. The law enabled these companies to change
from privately held firms to publicly traded companies which sell shares of
stock.

When mutual insurance companies are private, most of the equity in the
companies belong to the individual policyholders. When they go public, most
of the equity is held by people who buy the stock.

Although policyholders are technically the owners of mutual companies, the
bill that came out of the Pennsylvania legislature did not require companies
to compensate policyholders of companies that go public. (Other states have
since passed laws requiring compensation. After holding hearings on
demutualization, the chairman of the House insurance committee in New York
rejected a bill similar to Pennsylvania's as "inherently unfair to
policyholders."

Demutualization was a novel concept when it steamed down the fast track to
law in Pennsylvania in 1995. Only one state had passed such legislation. The
National Association of Insurance Commissioners had yet to even hold
hearings on a model law -- the normal process before legislation is written.

Senate insurance committee Chairman Holl introduced the bill.

"The reason I did it was that they came to me and told me the reason was to
preserve the small mutual companies in Pennsylvania who needed to raise
capital [ by issuing ] stock, or else they'd go belly up," Holl said.

"They" were lobbyists from Stevens & Lee, which drafted most of the actual
wording of the law.

Stevens & Lee is a lobbying firm that lists a number of mutual insurers
among its clients.

Holl's office forwarded the proposal to the Insurance Department for
comment. During a formal consultation on the bill with department officials,
a lawyer from Stevens & Lee said he viewed the legislation as a way to
attract clients for his firm.

After the department amended the proposal to prevent quick profits on stock
options by corporate insiders, it was approved by then-Insurance
Commissioner Linda Kaiser.

Holl sent it to the floor for a vote without holding public hearings.

"We only hold hearings if something is controversial," said Gizzi, the
Senate committee's executive director. "This wasn't." Usually, committee
chairmen determine what is controversial.

The legislative bill was virtually the same as the draft proposed by Stevens
& Lee, with the exception of Insurance Department amendments and a few
"minor technical matters, wording issues mostly," Gizzi said.

Without debate, the bill passed, 47-0, in the Senate. It was then tacked on
to a title-insurance bill in the House, and passed, again without debate,
158-39.

The law placed Pennsylvania policyholders at such a disadvantage compared
with those of other states that House analyst Speese considers its passage
"my biggest single failure in this job. It came up so fast and was so
complicated that I failed to grasp the full implications of it. It's the one
law I regret the most."

Three years later -- late in 1998 -- Stevens & Lee came back to the
legislature seeking more demutualization legislation. This time, they
pressed for an antitakeover law that would prevent bidding wars for
demutualized companies during the first year after they converted to stock
companies.

The lobbyists represented a company that had demutualized under the existing
law without compensating policyholders. Another company tried to buy the
company, offering policyholders, on average, $550 for their share in the
company. The proposed law would block that takeover attempt.

Again Holl sponsored the legislation suggested by Stevens & Lee, sending it
to the floor without hearings.

"It was done to prevent adverse takeovers that would place these companies
in jeopardy," Holl said. "It's a safeguard to keep adverse takeovers from
ruining a long history of successful operation by [ demutualized ]
companies."

Once again, it was tacked onto an existing House bill. But this time, it
infuriated the House committee.

"It came out of left field from the Senate, and there's not much you can do
about that," Micozzie said. "We never had hearings. I never even heard about
it until a couple of weeks earlier. It was very frustrating to me."

To Rep. Thomas P. Gannon (R., Delaware), whose bill on mental-health
coverage became the unwilling host of the Stevens & Lee proposal, it was "an
outrage."

He had worked for insurance companies for two decades, but Gannon broke with
the industry to expand coverage of mental illnesses. After four years of
difficult negotiations, he had finally pushed his bill to the threshold of
passage.

But before it could come to a vote, Sen. Vince Fumo (D., Phila.), who is not
a member of the insurance committee, offered the anti-takeover proposal as
an amendment on Nov. 24. When questioned on the floor about the legislation
by Sen. Melissa Hart, Fumo cited worries about takeovers when he
demutualized Pennsylvania Savings Bank during the mid-1990s. Fumo is CEO of
the bank. Thomas J. Finley Jr., a former president of the Insurance
Federation of Pennsylvania and a registered lobbyist with Stevens & Lee, is
a director and trustee of that bank and its mutual holding company.

Senate Majority Leader L. Joseph Loeper, who is a member of the committee,
accepted the amendment, without debate, in the waning hours before
adjournment.

For the mental-health bill to pass, it would have to carry the antitakeover
amendment that was literally drafted by insurance lobbyists.

"It was the last bill on the last day of the last year of the session, and
this lobbying group gets this thing stuck in my bill," Gannon said. "I know
full well they did it to avoid a full debate on the proposal. I went over to
the Senate and begged them not to do it. They did it anyhow."

The insurance lobby, Gannon said, "is used to getting its way. At times,
they use raw knuckles. They'll tell you: 'We've got the power; we're going
to do it.' And they do."

"But this -- this was a taint on the legislature."