Troy Downing: My job is Insurance Commissioner for Montana, but I’m technically called State Auditor. In Montana, this office regulates the insurance and the securities industry. The regulatory authority is much broader for insurance than it is for securities but there are a lot of similarities between the two.
I started in education as a research scientist at the Courant Institute of Mathematical Sciences at New York University – where I taught before leaving to found a technology start-up company. After that, I spent several years in the US Air Force and then went back into venture capital and had a boutique investment banking group, which started raising private capital for buying and managing commercial real estate. As that progressed, we saw an opportunity to self-insure and formed a captive insurance company
When the previous state auditor left this office to run for Congress, I looked at the opportunity; really, the Commissioner of Securities and Insurance is a consumer protection agency, which I’m passionate about. But there’s another side too, which is understanding industry and what helps promote it – because if you have a good, healthy, thriving industry that is also helping consumers, you then have more choices and competition, which makes markets better.
Troy: Our approach is similar internally to the way that we regulate. I believe in collaborative operations, and when I first got elected – which was during the COVID pandemic – there were a lot of folks who were out of the office and had been quiet for some time. I find it difficult to collaborate in that way and prefer when you can poke your head in somebody's door, ask a question, and have those hallway conversations – that is where good ideas come from, I believe, so I wanted that in-person approach. In terms of how we approach the market, one of the things that we've stressed is that we're accessible, we answer the phones, return messages, and open the door and take meetings.
"Even though we are the regulator, I like to picture us as having a partnership
with industry; I want them to know they can leverage that partnership."
One aspect that helps build these relationships – which is easier for us in Montana, because we're a smaller market compared to the more populous states – is that on the health insurance side we have monthly meetings with our three largest payers, which means we're touching base and they come to us with things they are considering or are concerned about.
There will be issues that we have questions about, so having those touch points and that open door smooths the way for an effective regulatory system, because most of the wild ideas are tamed before they are actioned upon and some of the great ideas are built up and vetted.
If you're doing business, it’s important to reach out to us with questions, concerns, or ideas. Even though we are the regulator, I like to picture us as having a relationship and a partnership with industry; I want them to know they can leverage that partnership.
As long as somebody's not asking for a waiver that would make it difficult to protect consumers, we're all ears – we want innovation, and we want things to improve. Sometimes, it puts you in a strange position because we hear about stakeholders wanting waivers or Regulatory Sandboxes.
I have asked what in the code and current regulatory framework is preventing them from doing what they want, and if it's not something that's going to affect solvency or fraud, or discrimination, then we're probably going to say yes. But we don’t often get as answer to that question.
Troy: Here's the thing: sometimes insurers do get in trouble. My advice is to communicate with your regulator early on, because it’s always better to be thorough on where you're at – you then have more options to figure things out. It’s similar to how you might want to do annual health check-ups, because if you have something it's better to catch it early on.
"We often see businesses that are not collecting enough premiums. They’re
trying to maintain their market by keeping rates artificially low."
If there's a problem, talk to us sooner rather than later. We've had some recommendations on companies that were struggling – primarily with trying to find reinsurers that would continue doing their programme because the markets became tight for some of our domestics – and if you can't change your programme to the point where you can make that reinsurer happy, and you can’t raise the capital that you need without them or be able to take on that extra risk, then let’s have those conversations early. If we do, there is still some possibility of bridging that gap rather than saying, “the non-renewal is coming up in 30 days” – by then it’s too late.
We often see businesses that are not collecting enough premiums. They’re trying to maintain their market by keeping rates artificially low. That sounds weird coming from the regulator, but if you get to that point where you're not building adequate reserves and you start to get close to a borderline hazardous situation, it gets harder and harder over time to remain solvent – especially when you have some smaller association programmes that want to show value to their members.
The way these smaller associations prove value to their members is by having prices lower than they can get in the open market, which sometimes ends up being inadequate. We see many of these situations – where there are conversations, I wish we could have had a year earlier or two earlier.
"Nobody wants the regulators walking through the door, but very
often we just want to see how we can help."
So, it’s tricky; if you create an association plan, and you have these businesses that joined and see the benefit there, but you've made those premiums artificially low and aren’t building the reserves you need as a result, then one or two adverse situations can bring you down. It’s the nature of insurance: if you have a smaller group, you don’t get the risk spread out as much.
These companies are sometimes reluctant to talk to us because we’re the regulator. When travelling around the state, we'll walk into an agency to see how things are going. Of course, nobody wants the regulators walking through the door, but very often we just want to see how we can help.
Troy: We have those conversations, and we have a good team in our financial examinations department. We also have a thriving captive insurance programme where we're making sure that they are adequate, but in general we don't want somebody coming in with that minimum threshold. That's when you start having to have conversations – if you're on the edge. It doesn't happen very often, but you don’t want people to be at that bottom rung on capital reserves.
This is why we look for some buffer, which often depends on the size not only of that one line of business, but on all lines. We think about how big the company is as a whole, and if it’s part of a larger group then multiple aspects come into play for us to be comfortable on whether they have adequate reserves to service a rainy-day issue or not.
Troy: We do a lot of outreach, especially on social media. We send newsletters and more traditional media – as well as opinion pieces – to get the message out there. However, most of our outreach is aimed at consumers rather than insurers.
This outreach can be an effective educational measure – for example, a case in point was in Colorado in 2021, with the wildfires that took out thousands of homes. These homes were inadequately insured: there were only 7% or 8% of them that had replacement cost insurance, which is a very small number. Everyday economic issues are being affected by broader conditions due to factors such as replacement costs. These costs are going through the roof because of supply chain issues, as well as labour and inflationary issues.
This creates this perfect storm and, returning to that tragedy in Colorado, we've done consumer outreach and made sure people are talking to their agents and have adequate coverage – and that the replacement costs are reasonable. For example, there are a lot of homes that cost $150,000 and the customers probably have $200,000 worth of insurance, but it's going to cost $600,000 to rebuild them.
"I don't see how – without some change to the bigger picture – we can
avoid a rate increase. The expenses have just gone up so much."
These numbers keep moving and are affected by other things too: such as in auto insurance, where there are supply chain, labour, the cost of parts, availability of those parts, and other costs to consider. It might take months for a car to get parts after an accident due to these issues, which is months that an insurer has to pay for sundries such as a rental car or other expenses. You start adding all this cost up and it puts pressure on the insurer because the assumptions on what it's going to cost to repair are increasing.
Because of all these moving parts, I don't see how – without some change to the bigger picture – we can avoid a rate increase. The expenses have just gone up so much. The messaging we’ve tried to communicate, especially on the consumer side, is understanding that you may be inadequately insured due to supply chain issues, workforce conditions, and inflation pressures.
Troy: We’re keeping our eyes on everything that's going on, because there are many things that are interconnected – especially with domestics exposed to issues such as Silicon Valley Bank and potential future concerns in similar areas. We do securities as well, so we're dealing with a lot of crypto issues, which has been interesting.
Troy: We take a holistic approach, and there are some plans that assumed you could have money in the bank and earn interest for 20 years – but for 15 years, banks weren't paying interest. Now we have interest rates rising, which is good for those assumptions but hurts equities, depending on your exposure.
"Having an open-door policy and connections with our domestics means
that it's often a simple phone call to find out what’s going on."
You need to be diligently monitoring those factors, because you can have something that is poorly designed that takes a hit, or you can have reasonably diverse portfolios where one thing bulges and another recedes. We look at the picture as a whole and try to understand what’s going on in the banking sector, what’s going on with all the crypto issues, and if, how, and why it affects our domestics.
Again, having an open-door policy and connections with our domestics means that it's often a simple phone call to find out what’s going on.
Troy: We have a reputation for being accessible. There will always be the one or two organisations that don’t have that trust, and every once in a while, we do interact with a body that doesn’t want to be regulated. I wish I could tell these groups that we want them to be successful. We want there to be healthy competition and good products in Montana – but organisations have to follow the rules.
