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Profile: Gov. Marc Racicot, American Insurance Association

August 2005 found Marc Racicot in the eye of a storm: he became CEO of the American Insurance Association three weeks before Hurricane Katrina struck the Gulf Coast, followed by Hurricane Wilma two months later. Since then, he’s battled a public relations and legislative crisis that has spotlighted industry practices and threatens to rollback long held policy measures that have protected the industry.

It’s a sharp turn for the former chair of the Republican National Committee (2002-2003) and a career politician with a string of successes. Racicot served as the governor of Montana for eight years, where he was known for shrinking big government. During his tenure as governor, he was championed for turning a $200 million deficit in the Montana legislature into a $22.4 million budget surplus two years later.
And he’s brought that same eye for efficiencies to his association, consolidating target areas to make AIA, in his words, “smaller, nimble and focused.”

Racicot recently spoke to CEO Update about his transition from politics to the private sector and association work, finding great staff and managing bad press.

Q: Hurricane Katrina was one of the costliest disasters in U.S. history and the insurance industry has taken some bad PR because of it. As the head of AIA, how do you handle communications during a period like this when people may not know both sides of the issue?

MR: That’s the key to your question; people don’t know both sides of the issue. The fact of the matter is we’re very proud of the response of the property casualty industry to people in a time of need after being harmed by an extraordinary catastrophe. As a matter of fact, within a very short period of time after all of the hurricanes from ‘04 and ‘05, we saw 90 to 95 percent of the claims that were submitted settled within a very short period of time. 

This is a heavily regulated industry. There is no financial services industry that exists that is more heavily regulated than the property casualty insurance industry. So they operate within a very confined environment and there’s not a lot of discretion that they have to exercise. They are in a business of covering risk, and as a consequence of that they understand, realize and accept the notion that they will be in a position of making  reparations and taking care of their policyholders. And the better they do that, the more opportunity they have to serve more customers and more policyholders over a longer period of time.
But the unfortunate part is that you have people who have been injured and who are in dire circumstances. Even though 95 percent of them may have been satisfied with the response that was provided, there are always going to be some because we, as human beings, can sometimes see things differently. 

Bad news gets halfway around the world before good news gets its shoes on. You don’t read about all the marriages that survive in the newspaper, you read about those that didn’t. That just tends to be our inclination as human beings to be concerned about adverse circumstances and perhaps more so than the things that are being done right. 

Q: How does that kind of publicity – as you say the bad news always travels faster and gets more attention – affect your lobbying, your advocacy or legislative push?

MR: It makes things difficult, there’s no question about it. The fortunate thing is that most every American, in some fashion or another, has experience with purchasing and has experienced the benefits of having insurance. Clearly, when there are representations, sometimes misrepresentations, intentional or otherwise, we begin a discussion sometimes with a burden of proof that’s larger than what I would consider to be fair under the circumstances, but we accept that burden. We know that this is a difficult business and that we have to perform exceptionally well to meet expectations, but we also know that there are going to be times where we have to focus on facts and try to drive those facts. We’re very proud of the facts, but in times of calamity, in panic, in disaster, sometimes it’s difficult to expect that people will just focus on facts alone because there’s a lot of pain and a lot of injury that rightfully should be a part of our consideration, too. So we recognize that we’re in a difficult business and that we have a burden of proof in terms of carrying these arguments forward in a positive light. 

Q: Obviously, you are now fluent in the insurance industry, but before that you had a career in Montana state politics and spent some time in the private sector. Can you tell us about the process that brought you here to AIA?

MR: It was beyond any kind of placement that I have had in the past. As a matter of fact, when I initially considered the possibility, I didn’t consider it favorably. Though the more I learned, the more I became comfortable with serving in this capacity. As a preface, I should point out that being involved in government for as long as I was, 27 years, I think introduced me to the notion that if I was going to be successful, I had to be able to precipitate some consensus around policy initiatives that allowed me to advance something that was in the best interest of the people that all of us serve. And when I left public office and went into the private practice of law, I began for the very first time in my career to represent individual clients, which I enjoyed. But I also missed the challenge of trying to build consensus within a very diverse group of people and to deal with large public policy initiatives and issues that had great import to my community and to my nation. After initially disclaiming any interest in serving the property and casualty industry, I learned more about the industry and began to realize that even though it was certainly not an exact replica of what I had done before, it called upon many of the same skills.

Q: Was there a learning curve?

MR: There’s a huge learning curve. It’s a very complex business. And of course being regulated in 50 different states and by the federal government, it has a long storied history. You need to understand the history precisely and the evolution of the industry; you need to understand the differences in terms of disciplinary approach or the approach different companies have because of their corporate structure. So it’s a learning curve that is significant, and it has taken me some time to become modestly familiar with all the operational dynamics.

Q: You had a strong reputation for driving efficiency in your political career. What elements from that did you bring here? What changes did you make when you got here?
MR: It probably becomes a matter of instinct in that if you’ve served in government for 27 years, you realize right away that the funds that are made available to you are not your own. As a consequence of that, you have to make very good use of them and be able to explain the uses of those funds to virtually every single tax payer, voter and citizen. Once that’s seared into your memory, you never forget it. When I came here I carried that same mentality. I realized that our member companies provide hard-earned dollars to this association to provide representation that’s effective and cost efficient. So we took a look at all of the things that the association did and decided on those things that we thought were most important and tried to make effective use of our resources and our personnel in a way that took advantage of their skills and also was cost effective. 

Q: Were there any surprises in the association that really required your strict or immediate attention when you arrived?

MR: Just the imperative of making certain you are utilizing the resources that are provided in the best possible fashion. We have a very vigilant board who have kept a very close and watchful eye on the operations of the organization, but that didn’t mean that we could not bring about further efficiencies and change methods and manners of doing business. There were no surprises in terms of extraordinary management difficulties, but we have done a lot of things differently in terms of consolidation and pursuing new technologies to become smaller, more nimble and focused. We are a public policy, advocacy group in 50 states and before Congress, nonpartisan in our approach and that’s how we are now presently configured. So we’re smaller by probably 10 percent in the terms of the total number of employees, but we’re more nimble and focused than we were before.

Q: You have a strong history of voluntary community involvement, including service on the boards of the Corporation for National and Community Service, a United Way chapter, and with America’s Promise. How has this work contributed to your career and your work here at AIA?
MR: Well, I grew up in a very large family in a very friendly state where people take care of each other. So it just seemed second nature to me to participate in community activities. It’s sometimes exhausting but always incredibly rewarding to be part of something that benefits the people you live with and is designed to allow members of the community to come together and do good things for people we care about. It’s been a very rewarding and inspirational part of my life. 

Q: Lobbying rules took a new turn in Washington with the new majority in Congress. As the head of an association you are the de facto chief lobbyist, whether you’re registered or not. How do you think the new lobbying rules will impact AIA’s initiatives?

MR: I don’t think they will impact our activities or our initiatives because the way we do business is to argue our case factually. We certainly visit legislators on both sides of the aisle; we work with their staffs; we work with the Administration. But we would be absolutely fearless about discussing any issue or any approach or any position with anyone. The fact is we’re just incredibly open and I don’t think that our approach will be altered in any way whatsoever, because its always been open and transparent. 

Q: To other politicians considering a move into the association arena, what advice or words of caution would you give them?

MR: Well, I don’t know that I’m in a position to advise anyone else. I can say for me that the reason I’m here, first of all, is an extraordinarily talented group of people who work here. The issue matrix is incredibly important, complex and intellectually challenging. The challenge is to build consensus and then to persuade a significant or substantial number of people to enact a public policy that you believe earnestly and honestly is in the best interest of the people. That’s what you do here. If you like something more than that, like serving an individual client or not being involved in the public or being subject to public scrutiny, you probably want to avoid serving as an association executive. But it’s a place where there is a lot of diversity. You’re responsible to a lot of people. You have to be very patient; you have to listen carefully; you have to build consensus. You’re going to be involved in the public. You’re going to be making arguments in front of different legislative bodies and courts and executive branch agencies. So it’s going to be very public and challenging and the degree of difficulty is high, but if you love those challenges, then this is the perfect place for you to be.

Q: Since staff is really the heart of an association, what do you look for in a second-in-command or your top GR position? What are some of the skill-sets you look for in people to occupy in those positions?

MR: Having some experience with governmental processes, particularly with legislative processes, is critically important for people involved in government affairs. You have to understand how the factory works if you’re going to try to have it work in a way that is considerate of your imperatives.
Energy and flexibility are very important. By that I mean the ability to work way beyond the amount of time for which you may be compensated on an hourly basis and flexible enough to be available when that’s needed and necessary. This is a business that is different than a business that has very regular work hours and produces some sort of product that is easily capable of definition. We deal with policy language and ideas that are not easily confined. So you’ve got to be willing, for instance, to travel to the Gulf on the weekend to understand what is happening on the ground in order to be able talk about how the industry is responding. You have to do that if you’re going to talk to the legislators here and Congress about what happened and who did what and why they did it. 

So I think the ability to be intellectually nimble, to be dedicated, flexible and experienced are the qualities that I would look for in somebody that was running either the government affairs shop, the communications shop or the second-in-command.

Q: Would it matter if they were a Republican or Democrat?

MR: No, absolutely not. For instance, for part of our management staff, I have no idea what their politics are. I know that one of our management staff could easily be classified as a Republican and the other one could easily be classified as a Democrat. It’s of absolutely no importance whatsoever in terms of performing your mission here. You have to believe in what we’re doing. I mean, if you cannot find merit in the ideas that we’re advancing then obviously this may not be the place where you would want to be.
I’m a cause person; I’m mission oriented; I want to live a life that has a reason for living it, and I want to be involved in things that are important to people I live with. And that’s what we do here.