Douglas Alan Hartz

IARCAC, https://iarcac.org/, is a non-profit to promote the use of associations to better govern the use of algorithms and AI. It is a start on what should lead to advances in applying wisdom to our governance of algorithms and AI. There are models of applying wisdom to governance. The Nat'l Assoc. of Ins. Commissioners - NAIC - has been doing this for decades.

Resources can be thought of as being in one of two broad categories; physical and human. The resource of human cooperation is based on trust and trust is the resource that the NAIC has focused on for decades, if not its whole 150-year history. Insurers were so large (in comparison to the rest of the economy) 150 years ago that some different form of governance was needed so that they could be sustainable and not violate the trust on which the whole risk sharing idea was dependent. Most of my involvement with insurance has been in making sure that the failure of some insurers will not cause that trust to be eroded.

On the governance of algorithms and AI, the argument that there can be no control of these because they are proprietary misses the critical point. This can be controlled through confidentiality agreements. In the regulation of insurers financial condition and market conduct through analysis and examination this has been supported by the NAIC.

Assist in defining problems, potential solutions and implementations regarding insurer regulatory and governance issues within the national state-based insurance regulatory system of the United States, individual states and jurisdictions of the USA and any other insurance regulatory authorities (collectively insurance regulators) as needed. This is done through communications with insurance regulators, other persons or entities affected by the actions or inactions of insurance regulators, and with clients.  Engagements have included avoiding or lessening the impact of compliance actions and orders by addressing issues while remaining in the examination or investigation phases of problem developments. 

As the national state-based insurance regulatory system of the United States has become much better at early detection of solvency related problems, IGC has moved its focus to protecting consumers, and the trust on which the insurance industries (Life & Annuity, Property & Casualty and Health & Care) depend, by working on corporate governance, enterprise risk management, and risk-focused financial and market conduct examination or investigation. This reflects the developing recognition that by the time problems are reflected in the financials they are like stage-4 cancer.  By this point, little can be done to solve or cure the problems for the entity or its stakeholders.

Assisted in the administration of troubled insurance related analyses, exams, reviews, supervisions, bankruptcies and state or federal receiverships. Primarily training and advising other staff serving as Deputy Receivers, Estate Managers, Examiners and in various other roles.

Oversaw examination, analysis and administration related to financial condition of insurance institutions in all lines of business covering all forms of organization.

I was hoping to help the Lacey Fire District improve (it was already very strong) given how difficult it was to move forward from the COVID-19 Pandemic. This was a board-like position where my decades of experience in dealing with some of the most difficult insurance company failures in history (with all of their management, finance, personnel, public relations and emotional issues) could have been helpful.

Oversaw all aspects of company (insurers, health plans and other company types) formation, licensing, restructurings, ongoing surveillance of financial condition and market conduct, compliance, supervisions, and receiverships.  Worked in the WA OIC executive team dealing with all aspects of insurance regulation ranging from consumer protection to legislation. Served on Compliance Committee determining actions, orders and fines to recommend to the Commissioner.

Was active in several NAIC groups while in this position.  This included serving as Vice-Chair of the Receivership Model Law Working Group which developed the Long-Term Care updates to the NAIC Life & Health Guaranty Association Model Act in 2017 (https://www.naic.org/store/free/MDL-520.pdf).  At less than a year, this was the fastest model law adoption by the full NAIC and is developing into the fastest adoption of a change by the states in the NAIC’s history.  Much assistance came from stakeholder development practices acquired at the WA OIC.

After serving as Chair of the Creditors Committee of US Fidelis (previously known as National Auto Warranty Services or NAWS), a mass marketer of extended auto warranty or vehicle service contracts for obligor companies including the Ultimate Warranty Corp. (UWC), and its several affiliate entities, administered Liquidating Trust for the general creditors resulting from the confirmed Chapter 11 Plan.

Directed a receivership and troubled company oversight group within the Financial Regulation Division. This was a group made up of the remaining members of what used to be a very large (150+) conservation and receivership oversight office that we (many years prior, while I was with Hugh Alexander and Associates) helped the Texas Legislature and DOI set up after the Legislature determined (in the early 1990’s) that it was going to wind up the 350+ person Liquidation Division and replace it with contract receivership service providers.  The group was initially about 12 staff, but this was restructured to move the conservation related half to the exam area.  This reflected that their work was closer to what should be done in risk-focused exams and further from the actions needed in formal receivership proceedings.  The other staff were financial analysts for the contracted receiverships.  While there may have only been about 6 staff in our oversight group, there were dozens of professionals and staff in each contracted receivership service provider and with some carrying over in each receivership, and many millions of dollars in annual budgets for all of these proceedings.  I had to fill the role of Deputy Receiver on Universal HMO of Texas until we could complete the bidding and contract process in May of 2013, and this required using examiners to complete takeover procedures of this receivership aimed at protecting the assets of a still solvent insurer under existential risks.

Federal Receivership of warranty or vehicle service obligor company, Ultimate Warranty Corp, (UWC) and several affiliate entities. More that 137,000 vehicle service contracts were active when the insurer of UWC, Capital Assurance Risk Retention Group (CARRG)(see below description of position as Deputy Receiver) was put into receivership for rehabilitation in October of 2007. We petitioned for the UWC receivership to be able to continue administering the contracts that had become the obligations of CARRG through a contractual liability insurance policy (a.k.a. a CLIP) that provided that CARRG would be obligated for everything that UWC was obligated for if UWC was not able to meet its obligations.

Served as Deputy Rehabilitator of Capital Assurance Risk Retention Group (CARRG) 12/2007 — 09/2012.  By keeping CARRG in rehabilitation and requiring “Receivership Agreements” from the producers of the long-term (5-10 years) extended auto warranty contracts to agree to pay for repairs or face making more costly refunds from cancellations of the underlying extended auto warranty contracts, claims were satisfied more than they would have been had we simply followed what was done with National Warranty Insurance Group, RRG, which went into liquidation.  Served as federal receiver of the Ultimate Warranty group of obligors 04/2008 — 09/2012.  Served as Creditor’s Committee Chair in the US Fidelis Warranty Bankruptcy proceeding (dealing with more than 35 state Attorney General offices) allowing for consumer and general creditor trusts to be created though Court approval of a “Liquidating Chapter 11 Plan” that permitted more claims to have been paid than likely would have resulted from any other sequence of events.  Served as Bankruptcy Court Appointed Trustee for the General Creditor Trust of US Fidelis Warranty 09/2012 — 12/2014.  Served as Supervisor of Seaton and Stonewall for Rhode Island in quasi-confidential supervisions where there was some probability that one (or both) of the insurers in runoff could have had to been placed into receivership.  Restructuring allowed for both to continue in runoff.  While the above rehabilitation and supervisions were my largest projects during this period, there were also projects helping states examine quasi-governmental insurers, receivership offices and performing other general consulting tasks.  There have also been numerous engagements consulting with law firms or hedge funds trying to obtain more in-depth understandings of how insurance regulation works or should work. This was all held in abeyance (except the federal Bankruptcy Trusteeship) while I was a state employee.

Insurance and financial restructuring legal practice. Also worked in troubled company resolution, receivership and regulatory consulting. Advanced projects designed to expand the insurance restructuring area of the financial restructuring practice (a group that worked on virtually all of the airline bankruptcies of the time and many other large commercial enterprise restructurings) of one of the largest global law firms of its era. Provided expert testimony for the TX DOI trying to move Highlands Insurance into rehabilitation proceedings to avoid liquidation using examination derived evidence supporting this as providing better outcomes for more of the insurer’s policyholders.

Provided legal consultation and staff support for the Financial Condition (E) and Accreditation Standards (F) Committees, Subcommittees, Task Forces and Working Groups at the NAIC.

Supervised contacted special deputy receivers (“SDRs”, arguably, other than the SDR for Transit Casualty where the SDR contract was signed by the Judge of the Supervising Court and not by the Commissioner of Insurance) with one Financial Analyst and one secretary. There were dozens of professionals and staff in each SDR’s operations including those carried over from the insurers in each receivership. In some years there were more personnel working in, and many millions of dollars in annual budgets for all of these proceedings, than in the ongoing regulatory operations of the DOI itself. Developed procedures for internal audit and accounting analysis (including reinsurance) leading to the recovery of billions of dollars in estate assets. Had leading role in developing a system of insurer liquidation accounting that has, in large part, served as the model for the NAIC Global Receivership Information Database financial reporting requirements. Chaired, Vice-chaired or was a member of many NAIC groups working on reinsurance, receivership model law updates, and guaranty association matters. Developed claims and reinsurance tracking systems that meet fiduciary, statutory and guaranty fund requirements and coordinated several complex commercial litigation cases and disputed reinsurance programs. Worked with the Chief Financial Examiner and other Financial Regulation Division staff on avoiding several liquidation proceedings by employing various restructuring and other resolution (for example, seizing all assets until personnel changes were made by board of directors) mechanisms while insurers were still undergoing field-work examination procedures. Served as President, in 1998 – after serving as Vice President and Treasurer of the International Association of Insurance Receivers (IAIR, f.k.a. the Society of Insurance Receivers, SIR) starting in 1995. Chaired several committees in IAIR through these and prior years.

Serve as Deputy Receiver, expert witness and consultant in several states on several insurer receiverships or troubled insurance companies.

Managed insurance company receiverships in several states as Special Deputy Receiver or Assistant Receiver. Led numerous other projects and supervised lawyers, accountants, claims professionals and staff in support of consulting company and separate, but related, law firm dealing with insurance regulatory matters and related legislative activity.

Initially worked half time on developing a tax practice within this ‘principally bankruptcy practice’ firm and half on assisting on insurer liquidations, which were primarily being handled by an ‘Of-Counsel’ at the firm, Hugh Alexander.  Within a few months planned forming separate firms handling insurer liquidations and insurance regulatory law. Learned origins of several NAIC Model Acts from former Nebraska Insurance Commissioner, who we convinced the Montana DOI should be retained to relay histories on the Glacier General Liquidation and NAIC Rehabilitation and Liquidation Model Act then adopted in Montana.

Performed project management, systems design and administration, investigative accounting, contract and claims administration and adjudication, government and international relations, and strategic planning.  This was a position that started at a low grade-5 while being targeted to a high grade-12.  It was unusual at the time for a person to have both an IT and accounting background.  As a Systems Accountant some portion of my station was to interpret ‘IT-speak’ for the other accountants and interpret ‘account-ese’ for the other IT professionals.