ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, May 19, 1996 TAG: 9605170015
SECTION: BUSINESS PAGE: 1 EDITION: METRO
DATELINE: RICHMOND
SOURCE: TOM SHEAN LANDMARK NEWS SERVICE
WHEN STEVEN FOSTER was hired to run the state Bureau of Insurance, he was a county manager with no background in insurance. Now he has moved on to - guess where? Prudential Insurance Co. of America.
The last time Virginia's State Corporation Commission recruited someone to head the Bureau of Insurance, it chose a 34-year-old county manager with no insurance experience.
It was early 1987, and the SCC decided that Steven T. Foster's government managerial skills outweighed his lack of an insurance background.
''Everybody I talked to said Steve was a quick study and that he would know more about insurance in a few years than anybody else around,'' said Thomas Harwood, a member of the SCC at the time who was instrumental in hiring Foster.
Their predictions proved to be accurate.
Foster, who stepped down last month to join Prudential Insurance Co. of America, won widespread praise for the way he handled several problems, including the collapse of Fidelity Bankers Life Insurance Co., a large Richmond-based life insurance company, and abusive practices by Trigon Blue Cross Blue Shield, the state's largest health insurer.
Before Foster took over, Virginia's insurance bureau was considered weak. ''He strengthened it and gave it a professional approach,'' said J. Robert Hunter, director of insurance for the Consumer Federation of America and former insurance commissioner of Texas.
At Prudential, Foster will fill a newly created post with responsibility for improving the company's compliance with insurance regulations.
His departure came at a crucial time for Virginia's insurance bureau. The bureau has been examining a plan by Trigon for conversion from a nonprofit organization to a for-profit stock company.
The bureau's parent, the State Corporation Commission, is expected to hold public hearings this summer on Trigon's plan.
Meanwhile, Foster's decision to join Prudential has prompted questions among insurance industry observers about the propriety of state regulators joining companies they recently monitored.
The Virginia bureau is one of 28 state insurance departments participating in a long joint investigation of Prudential's sales practices.
Policyholders and regulators contend that many of Prudential's agents fraudulently misrepresented the details of life insurance policies they sold to consumers.
Led by New Jersey's insurance department, state insurance regulators have been looking at such deceptive practices as ``churning,'' in which policyholders with some cash value in their policies are encouraged to replace these with more expensive policies without being adequately informed of the cost.
Foster said he immediately isolated himself from all regulatory matters involving Prudential when he was approached in February about taking a job with the company.
''We took steps to avoid even the appearance of a conflict of interest,'' he said.
Foster earned a bachelor's degree and then a master's degree in public administration, both from the University of Virginia. He jumped into city and county government, and by 25 was managing Spotsylvania County, a rapidly growing county in Northern Virginia.
In the face of burgeoning population growth and demands on Spotsylvania's schools, ''I got a baptism by fire,'' Foster said.
But the SCC's decision to hire him as head of Virginia's insurance bureau was unusual, he acknowledged.
``A lot of people shook their heads and said, `Who in the world is this?''' he said. ``I had a lot to learn, but I wasn't afraid to ask questions.''
Foster demonstrated his understanding of insurance in May 1991 when he took control of Fidelity Bankers.
As did several other life insurers in the late 1980s, the Richmond-based company sought higher returns from its investment portfolio by buying high-yield, high-risk ''junk bonds.'' When some of these investments soured, panicky policyholders began withdrawing money from the insurers.
Faced with a run on Fidelity Bankers by its policyholders, Foster got a court order to seize the company before its resources were depleted. Because of his decisive action, Virginia's insurance bureau was able to liquidate Fidelity Bankers' investments in an orderly way and protect its remaining policyholders.
Foster's work on Fidelity Bankers and other insurance issues won the respect of regulators in other states. In 1992, he was elected to a one-year term as president of the National Association of Insurance Commissioners.
''That's pretty important in the insurance world because the NAIC makes the model bills'' used by state legislatures to regulate insurance, said Hunter, the former Texas insurance commissioner. ''Partly because of [Foster's] leadership, the NAIC is a stronger organization.''
Hunter and other consumer advocates give Foster high marks for being knowledgeable, accessible and fair.
''He took his public responsibilities seriously,'' said Jean Ann Fox, president of the Virginia Citizens Consumer Council. ''I've watched him try to get things done on behalf of consumers over the opposition of the General Assembly. My impression is that he did a good job for the public in a tough environment.''
During Foster's year as president of the National Association of Insurance Commissioners, the group made an effort to bring consumer advocates to its meetings, she said.
But Fox expressed concern that Foster's departure could hamper the state's scrutiny of Trigon's proposed conversion to a for-profit stock company. The insurance bureau, she said, has never weighed in on the debate over whether Trigon's plan is fair and good for consumers.
Trigon, based in Richmond, has 16,000 group policyholders and 185,000 individual policyholders. It provides health-insurance coverage for 1.8 million people, many of them in Virginia.
With 185 employees and an annual budget of $14 million, the insurance bureau is the largest division within the SCC, which has broad regulatory power over banking, telecommunications, electric utilities and transportation companies in Virginia. The insurance bureau is responsible for regulating 1,500 insurance companies and 78,000 insurance agents doing business in the state.
The SCC has not yet chosen Foster's successor. It appointed Deputy Commissioner Alfred W. Gross as acting commissioner. Gross, who joined the bureau in 1981, has been its deputy commissioner of financial regulation section since 1989.
Among the nation's insurance regulators, Foster stood out for his advocacy of stronger state regulation and support for certifying those insurance departments that adopted more rigorous standards. His nine years as head of insurance regulation in Virginia also made him one of the more senior insurance commissioners in the country.
''Nine years is an eternity,'' said Joseph Belth, a retired Indiana University insurance professor who edits the newsletter Insurance Forum. ''The tenure of most insurance commissioners is distressingly short. They come and go constantly.''
Foster's regulatory experience and his track record in Virginia were some of the things that made him attractive to Prudential, said Bob DeFillippo, a Prudential spokesman.
But that still doesn't sit well with some insurance industry observers. Foster was a very solid commissioner, said Hunter, the former Texas insurance commissioner who now works with the Consumer Federation of America.
Prudential, however, is likely to hold out its decision to hire Foster as evidence to regulators and courts that it can voluntarily improve its insurance sales practices, Hunter said.
Foster's move to Prudential also triggered a critical editorial this month in the insurance industry newspaper National Underwriter. Departures of insurance regulators damage the credibility of those who remain in place, the weekly newspaper said in an editorial titled ``A `Revolving Door' Model Law Is Still Needed.''
``Few would deny that Prudential needs major help in the compliance area,'' it said. ``Mr. Foster is known as an honest regulator and straight shooter. So what's the problem?
``For starters, Mr. Foster's state has been a member of the multi-state task force that is investigating Prudential's sales practices and is expected to hand down its findings shortly.''
Foster, who will work in Prudential's Newark, N.J., headquarters, said he had no misgivings about moving into the industry he previously regulated. One of the attractions of his new job is the opportunity to build a program that will protect Prudential's policyholders, who own the company.
``I made what I think was an informed decision,'' Foster said. ``I was mindful of [Prudential's] problems, and I was impressed with the extent to which they are going to deal with those problems.''
LENGTH: Long : 159 lines ILLUSTRATION: PHOTO: MARK MITCHELL/Landmark News Service. Steven T. Foster,by CNBwho will work in Prudential's Newark, N.J., headquarters, says he
has no misgivings about
moving into the industry he previously regulated. color.