Mass. Launches Review of Insurers’ Executive Pay
The state Division of Insurance has launched an unprecedented examination of executive compensation at Massachusetts insurers after disclosures that Liberty Mutual Holding Co. paid its top executive roughly $50 million a year.
The agency sent letters to roughly 100 Massachusetts insurers requesting details on how they set executive pay, including minutes from company meetings. It asked companies to report the pay for every board member, officer, or employee earning more than $100,000 a year in 2010 and 2011.
The agency plans to compile the information in a report, rather than to challenge outsize pay packages. In an interview Thursday, Massachusetts Insurance Commissioner Joseph G. Murphy repeated his view that the agency needed to be concerned with the amount insurers paid executives only if the amount could threaten an insurer’s financial health and impair its ability to pay future claims. That is rarely the case with large, profitable insurers such as Liberty Mutual.
“If we saw some aberration where it was negatively affecting their solvency, we would probably drill down and perhaps take action,” Murphy said. “But if it’s the question of ‘Does ACME Insurance pay John Smith $5 million or $25 million?’ that is really not our role. It’s not for us to make that judgment.”
The agency decided to launch the examination after the Globe reported two months ago that Liberty Mutual, the largest insurance company based in Boston, paid former chief executive Edmund F. “Ted” Kelly roughly $200 million over the past four years, making him one of the highest paid chief executives in the country. The disclosure irked watchdog groups because Liberty Mutual is mutually owned by its policyholders, so any surplus profits should be distributed to customers as dividends or invested back into the company…
‘Insurers seeking rate increases should justify their expenses and explain why costs should be passed along to policyholders,’ said Brad Puffer, a spokesman for Coakley. ‘We believe [the Insurance Division] should carefully scrutinize all the factors — including executive compensation.’