Hawaii’s only F in the State Integrity Investigation came for its state insurance commissioner, who oversees the insurance industry.

In two categories — protection from political interference and firings without justification — Hawaii strikes out completely, getting a 0 percent score.

Hawaii got a 57 percent overall mark for in the State Insurance Commissions category. That put us in 37th place, tied with North Dakota. Mississippi came in first. At the bottom was Wyoming.

Hawaii scored so poorly largely because the state insurance commissioner isn’t protected from political interference and can be removed from the job at any time. The commissioner serves at the will of the director of the Department of Commerce and Consumer Affairs, who is appointed by the governor.

Overall, the State Integrity Investigation ranked Hawaii 10th after Civil Beat reporters researched 330 “Corruption Risk Indicators” across 14 categories of government. (Click here to learn more about the methodology used for the project.)

Bottom line: Instead of an independent state commissioner protected from political interference, Hawaii’s law creates the opposite. The commissioner is a political appointee who can be fired at any time.

Here’s the basis for the 31-percent grade that contributed to the overall 57 percent score in the State Insurance Commissions category. It’s your turn to evaluate whether Civil Beat got it right and to share what you think should be done to improve the situation. Share your comments at the bottom of this story.

Here’s the first question the State Integrity Investigation asked regarding state insurance commissions.

Is the state insurance commission protected from political and special interest influence?

Overall score: 31%

Here are the criteria Civil Beat used to answer that question and what Civil Beat found.

1. In law, there are requirements for members of the board and senior staff of the state insurance commission to recuse themselves from policy decisions where their personal interests may be affected.

Notes: There is no state insurance commission, but there is a state insurance commissioner. There is nothing specific within the state Insurance law about a recusal policy, but the Standards of Conduct law would apply, according to state Insurance Commissioner Gordon Ito. The conflicts of interest rule specifies that employees should disqualify themselves from taking official action on matters they have substantial financial interests.

Sources:

Hawaii Revised Statutes, Title 24. Insurance, Chapter 431 Insurance Code, Article 2. Administration of Insurance Laws, Part 1 Insurance Division, §431:2-106 Ethical requirements for insurance division staff. Visit (http://www.capitol.hawaii.gov/hrscurrent/Vol09_Ch0431-0435E/HRS0431/HRS_0431-0002-0106.htm) for details.

Also see §84-14 Conflicts of interests. Visit (http://www.capitol.hawaii.gov/hrscurrent/Vol02_Ch0046-0115/HRS0084/HRS_0084-0014.htm) for details.

Score: 100%

Scoring criteria: These are the scoring criteria for this question.
Yes: A YES score is earned if there are requirements for the members of the board and senior staff of the state insurance commission to recuse themselves from policy decisions where their personal interests, including personal financial interests as well as those of their family and friends, are affected.
No: A NO score exists if no such requirements exist in regulation or law.

2. In law, the members of the board and senior staff of the state insurance commission are protected from political interference.

Notes: There is no state insurance commission, but there is a state insurance commissioner. The insurance commissioner’s appointment is not protected from political interference. In fact, the law states that the insurance commissioner’s appointment be made “with the approval of the governor” by the director of Commerce and Consumer Affairs, who is also a gubernatorial appointee. The state insurance commissioner serves under the Commerce and Consumer Affairs director.

Sources:

Hawaii Revised Statutes, Title 24. Insurance, Chapter 431 Insurance Code, Article 2 Administration of Insurance Laws, Part I. Insurance Division, §431:2-102 Insurance commissioner. Visit (http://www.capitol.hawaii.gov/hrscurrent/Vol09_Ch0431-0435E/HRS0431/HRS_0431-0002-0102.htm) for details.

Also see §431:2-105 Deputies, employees. Visit (http://www.capitol.hawaii.gov/hrscurrent/Vol09_Ch0431-0435E/HRS0431/HRS_0431-0002-0105.htm) for details.

Score: 0%

Scoring criteria: These are the scoring criteria for this question.
Yes: A YES score is earned only if the agency (or set of agencies) has some formal organizational independence from the government. A YES score is earned even if the entity is legally separate but in practice staffed by partisans.
No: A NO score is earned if the agency is a subordinate part of any government department or agency.

3. In practice, the the members of the board and senior staff of the state insurance commission are protected from political interference.

Notes: There is no state insurance commission, but there is a state insurance commissioner. The Insurance Division is under the Department of Commerce and Consumer Affairs. The state insurance commissioner is under the governor’s administration, according to Lloyd Lim, Health Branch administrator of the Hawaii Insurance Division. Former state Insurance Commissioner J.P. Schmidt said the state insurance commissioner is hired by the DCCA director, but the governor usually has input. Schmidt said there is no protection in the state law that makes the state insurance commissioner independent. State Insurance Commissioner Gordon Ito said he can be removed from his job if he doesn’t perform.

In 2007, the insurance commissioner had to plead with the Legislature to reinstate his authority.

The bill reinstates rate regulation that the Legislature let lapse last year, enabling the insurance commissioner to disapprove rates that are “excessive, inadequate or unfairly discriminatory.”

State lawmakers move on health issues – Bill would regulate insurance rates.
West Hawaii Today (Kailua-Kona, HI) – Saturday, April 28, 2007.
Author/Byline: Nancy Cook Lauer, Stephens Media Capitol Bureau.
Section: Local.

Sources:

• Gordon Ito, insurance commissioner, Hawaii Insurance Division, 9/28/11, telephone interview.

• Lloyd Lim, Health Branch administrator, Hawaii Insurance Division, 9/30/11, telephone interview.

• J.P. Schmidt, former insurance commissioner, Hawaii Insurance Division, 9/30/11, telephone interview.

Score: 25%

Scoring criteria: These are the scoring criteria for this question.
Very Strong: This agency (or set of agencies) operates independently of the political process, without incentive or pressure to render politically favorable policy decisions.
Fair: This agency (or set of agencies) is typically independent, yet is sometimes influenced in its work by negative or positive political incentives. This may include public criticism or praise by the government.
Very Weak: This agency (or set of agencies) is commonly influenced by political or personal incentives. This may include conflicting family relationships, professional partnerships, or other personal loyalties.

4. In practice, the head of the members of the board and senior staff of the state insurance commission are protected from removal without relevant justification.

Notes: There is no state insurance commission, but there is a state insurance commissioner. State law specifies that the state insurance commissioner serves “at the pleasure of the director of Commerce and Consumer Affairs.” The governor approved the appointment, so the state insurance commissioner may be removed from office at any time. State Insurance Commissioner Gordon Ito said he can also be removed from his job if he doesn’t perform. Lloyd Lim, Health Branch administrator of the Hawaii Insurance Division, said the insurance commissioner serves at the pleasure of the Consumer and Commerce Affairs director. Former Insurance Commissioner J.P. Schmidt said the state insurance commissioner is an “at-will employee,” which means the director can fire the state insurance commissioner at any time.

Sources:

• Gordon Ito, insurance commissioner, Hawaii Insurance Division, 9/28/11, telephone interview.

• Lloyd Lim, Health Branch administrator, Hawaii Insurance Division, 9/30/11, telephone interview.

• J.P. Schmidt, former insurance commissioner, Hawaii Insurance Division, 9/30/11, telephone interview.

Score: 0%

Scoring criteria: These are the scoring criteria for this question.
Very Strong: The members of the board and senior staff of the state insurance commission serve a defined term and cannot be removed without significant justification through a formal process, such as impeachment for abuse of power.
Fair: The members of the board and senior staff of the state insurance commission serve defined terms, but can in some cases be removed through a combination of official or unofficial pressure.
Very Weak: The members of the board and senior staff of the state insurance commission can be removed at the will of political leadership, whether from inside the agency or elsewhere within state government.

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