The regulator

SANTA FE -- Eric Serna knows a little something about New Mexico. He should. His family's roots in the state can be traced all the way back to 1598.

Serna grew up in Espanola, N.M., a small town in a rural county that holds the dubious distinction of the highest rate of heroin overdose in the nation.

The only extended time Serna's ever spent away from the state came during his stint at law school.

The attorney then pursued a career in private practice before working for former U.S. Sen. Joseph Montoya, D-N.M.

He's been serving the public almost constantly since. He worked for former N.M. Gov. Bruce King as the state's secretary of labor. More than a decade later, he decided to run for U.S. Congress. He won his party's nomination, but then lost the race to the Green Party candidate -- by 700 votes.

Serna took the hint and decided to take a break from public service. He was about to sign an agreement with a law firm when his phone rang. It was the new president on the line -- a guy by the name of Bill Clinton.

"Would you be interested in serving in my administration?" Clinton asked him.

Clinton offered Serna the director of agriculture post for the southwest region.

"You don't tell the president no," Serna said. "But I didn't want to go to Washington unless I was going as a congressman."

The president allowed Serna then to set up shop in Santa Fe, where he served two years in the administration before returning to private practice.

Serna soon found himself back in the public sector after a one-year appointment as superintendent of insurance -- a post he continues to hold after five years.

"I've enjoyed it," he said. "It's been challenging."

Serna's service doesn't end at the office door. He's served as the national chairman for the Mexican-American Legal Defense and Education Fund, a leading Hispanic civil rights group.

He also founded Con Alma Health Foundation Inc., a nonprofit set up to address the health need of ethnic minorities in New Mexico.

"I've accomplished a lot in both the public and private sectors, but what I am most proud of is my public service and my volunteer work," Serna said.

He's also active in the National Association of Insurance Commissioners, serving as vice president of the Western Zone, vice-chair of the international committee and chair of the NAFTA committee.

Benefits Selling: You've been both elected and appointed. What's the difference between the two?
Eric Serna: As a statewide elected official the accountability is there in that you hold yourself up for re-election. That's really a plus because it keeps you on your toes. Now, in an appointed position, it gives one the independence to set policy and always keep in mind political considerations but not allowing political considerations to be paramount. That is to say a decision is made because it's in the best interest of the consumer and the industry we regulate. And I don't have the fear of retaliation from the electorate if it's a decision that might be perceived to be anti-consumer.

BS: How is the regulatory environment in New Mexico and why would someone want to do business here?
ES: It's a fair, balanced regulatory climate. We have good cooperation between the governor and myself. And the governor and I have the type of relationship that allows for an innate understanding of each other's views, which works well to accommodate the growth in New Mexico.

BS: How do you maintain the balance between a business friendly environment while still protecting consumers?
ES: It's easy to do when you have the kind of mutual support from the various elected officials and cabinet officials. We are able to ensure taxes will not jump with regard to the industry we regulate. Down the road, we might even look at cutting some of the taxes companies have to pay. That, coupled with the incentives this administration has promoted tax-wise has been a good combination because we're able to invite companies to domicile in New Mexico, to provide employment, to improve economic growth. We view the industry as a critical component to the state's growth. Because of the governor's support I am able to visit with some of the captains of industry and assure them of our potential growth and limit some of the traditional regulatory lag that costs corporate America so much today. They're viewing this positively. We're looking at legislative measures to make it more appealing for insurance companies to domicile in New Mexico. And the end result is a better choice of products, more competition and a better availability to the consuming public of this variety of products.

BS: What are you most proud of when it comes to your tenure as New Mexico's insurance superintendent?
ES: It's not a single thing. We have the toughest privacy regulation in the country. We passed a regulation that requires companies to let consumers know if there have been any inquires. We have the toughest credit scoring law on the books -- with regard to setting insurance rates in the property and casualty departments. We've also modernized the department. We're trying to get to a paperless department. We're also working with the NAIC on our speed-to-market. We're a small state, but our premium dollars last year were close to $5 billion. By comparison, the insurance industry in New Mexico generates more premium dollars than the entire state budget. We're able to work with the industry without being combative. I have a reputation of being consumer-protective, but I have been able to balance the interests of the industry and its importance to the state.

BS: What is the logic behind the various licensing requirements?
ES: You want to make sure the companies that do business in your state are solid and will remain that way. As regulators, we have a dual responsibility: to protect the consumer and ensure the solvency of the company. So we require certain surpluses, certain capital criteria that ensures that if there is a loss the consumers and their customers will be paid for that loss. We also have a guarantee fund that takes care of those rare situations where a company can't fulfill its responsibilities. It's important to have licensing requirements to ensure you get good players in the market. Before [New York Attorney General Eliot] Spitzer's investigations, the insurance industry wasn't one with a lot of scandals. You didn't have the Enrons or Worldcoms in this industry. And that's because of the strong state regulators. Overall, the industry is strong; it's vibrant and honest. And that's because of the states. We also want to make sure that the agents dealing with the customers are trained and educated. We have basically deregulated commercial lines. So if a company wants to set a rate, they set a rate. And the market takes care of that. If they aren't competitive, they don't get business. We don't have to approve rate increases in advance.

BS: How are group and voluntary sales different from individual?
ES: We have payroll deduction slots in our state that many companies want to participate in. Each state has their own process, but here in New Mexico, we have a pretty stringent procedure. But once you go through that, it's an automatic thing. You can do the group sales in the various agencies, as long as you don't disrupt the work force. It just depends on how good the product is and how good you are at selling it. But we're very careful about which products we allow into the payroll deduction slots. And a lot of group sales now are done over the Internet. And that has some advantages and disadvantages. One disadvantage is that you don't have a body there you can ask questions. But the bottom line is, I want more competition. I want more companies in New Mexico. I want companies that are going to deal with some of the niche areas, such as medical malpractice. We have one carrier here -- I wish we had five carriers. We can regulate companies, but we can't force them to do business here. What we need to do is provide a friendly environment, so they want to do business here.

BS: What kind of regulatory trends do you see on the horizon?
ES: We've been through a very hard market. It started to soften and then we had Katrina, Rita and Wilma. Right after Sept. 11, it hardened quite a bit. We were just starting to get some reductions. I think a real testament to the industry is that even with all of these disasters, we still have a very strong, vibrant industry. Claims are being paid. I think one of the trends you're going to see is more cooperation, more of a system where the NAIC can do a little better than FEMA did this last time. We've been through a series of disasters here that is unprecedented -- in succession. But I think we've been able to deal with it. The federal government has to cooperate with the private sector.

BS: What can we -- as an industry -- take away from something like Katrina?
ES: One thing we can learn is that the agents and the companies need to make sure that their representatives deal with customers openly. They need to explain, for example, to people in places like New Orleans a little more thoroughly that they live in a hurricane-prone area. They might not have one for 10 years, but chances are, they are going to have one. And they might be better off paying a little higher premium rather than risk all that exposure. The industry is going to have to continue to reach out and communicate better and more effectively, with the help of regulators.

BS: What about the federal preemption debate? Do you think the feds can regulate this industry better than the states?
ES: Absolutely not. I would much rather call a state department than a 1-800 number in Washington to complain about lack of payment. That simplifies it. Federal preemption claims continued state involvement, but we wouldn't have any say.

BS: How do you address the argument that illegal immigration drives up premiums?
ES: For every study I've seen that says immigrants cause higher rates, I've seen nine studies that say the opposite. For the most part, their taxes are still being withheld. They don't pursue Social Security. They don't pursue Medicaid or Medicare because of the fear of deportation. And they don't use the health services. When they do use it, it is a costly proposition, because it's a emergency. It's usually a life-or-death situation. And that does drive up costs. But there's not enough of that happening to offset the total immigration population and what they put into the system.

In this state, what I have seen is they come in, they work hard. They do a lot of the jobs others won't do. They pay into the system. They pay taxes. They go to Walmart; they're still paying taxes. They don't use the health facilities unless there's a dire emergency. So I don't see the drain that others see. And I haven't seen any data to really prove the case for them.

BS: What is driving up the costs?
ES: We found out that, in this state, what drives up costs is emergency care. Why is there so much emergency care? Because we don't do enough preventive care. If we spent a little more money on the front end, we'd spend a lot less on the back end. But, politically, that's not a popular position to take.

BS: What other trends do you see?
ES: I see speedier results because of the licensure. I see speedier claims adjustments being made. I see a more rapid response. The Katrina disaster? There was no need for that, given the technology. That points to the fact that there were some serious issues there and some prominent agencies were ill-equipped and asleep at the switch. I think that what the future holds for regulation and for the insurance industry is not a repeat of that.