Insurers Prepare For Full Agenda Of RegulatoryChallenges In 2003

In 2003, insurance industry groups will be focusing on a widevariety of regulatory issues, from implementing the federalterrorism reinsurance backstop legislation to beating back effortsto limit the use of credit history in underwriting.

With implementation of the complex backstop law heading the listof most insurance groups, Robert Zeman, vice president andassistant general counsel of the National Association ofIndependent Insurers in Des Plaines, Ill., noted thatimplementation falls to state insurance regulators and individualinsurance companies.

Ann Spragen, senior vice president and general counsel for theAlliance of American Insurers in Downers Grove, Ill., said thatimplementation presents many problems for the industry as well asopportunities to solve a financial problem.

According to Ms. Spragen, one challenge is that the legislationis drafted in public-policy terms. But insurance industryoperations are based on forms and rates that are subject to statefiling rules and regulatory review, leading to a number oftechnical questions for insurers, she said.

Julie Rochman, vice president of federal affairs for theAmerican Insurance Association in Washington, also observed thatthe backstop law is a temporary, three-year measure. This meansthat property-casualty insurers must take a longer view.

Ms. Rochman further noted that having a federal backstop inplace does nothing to eliminate or minimize the risk of anothercalamitous terrorist attack. Nor does it guide insurers on how toprice the risk of terrorism.

Another potential problem noted by Mr. Zeman is how far stateregulators can go in regulating implementation of the backstop lawwithout running afoul of preemption provisions built into themeasure. He added that exclusions in insurance policies couldpresent problems as companies try to comply with the new law andimplementing regulations.

For the National Association of Mutual Insurance Companies,based in Indianapolis, the top issue remains the regulation ofinsurance at the state, not federal level. Monte Ward, NAMIC vicepresident of federal affairs, said that this issue, which has beenof concern for years, became even more so following congressionalhearings on proposals for an optional federal chartering system(see related story, page 12).

One broad area mentioned by insurance groups is civil justicereform, particularly the class action system.

Ms. Spragen said that for the property-casualty industry,medical malpractice, construction-defect and asbestos are some ofthe “most acute” areas that could benefit from civil justicereform. Each of those areas has been seeing an increasing number ofskyrocketing verdicts and settlements in the past few years, manyinvolving class action lawsuits.

Ms. Rochman indicated that in terms of improving stateregulation of insurance, the AIA will continue efforts to improvespeed-to-market reforms. She also said that the AIA will continueto oppose the imposition of any new limitations, such as raterollbacks.

Mr. Zeman also said that for the NAII, speed to market remains akey regulatory issue. “Insurers need the ability to get their newproducts to market quickly,” he noted.

He stated that the NAII will “go as far as possible” towardgetting a use and file system for forms and rates established inthe various states. “It is more of a battle in some states than inothers,” he observed.

In the Alliances view, mold, and its interplay with homeownersand commercial insurance policies, remains an area ripe forregulatory reform. “We dont believe that mold claims are going totaper off, and there continue to be a number of issues associatedwith mold claims,” Ms. Spragen stated.

Ms. Spragen said that one of the mold-related issues is spellingout who is a qualified mold remediator. This issue promises to be“front and center” in Texas and will likely come up in otherstates, she predicted.

Similarly, the AIA will work on the mold issue in Texas,California and elsewhere, Ms. Rochman said.

But for the AIA, reforms in the area of asbestos are even morecrucial, Ms. Rochman said.

Another area still in need of regulatory reform is automobileinsurance, the insurance groups said. Ms Spragen indicated that theAlliance will be focusing its efforts on New Jersey inparticular.

The Alliance will undertake similar efforts in Massachusetts,although Ms. Spragen noted that the automobile insurance issuesthere differ from those in New Jersey. “We are focusingparticularly on the residual market as a starting point,” shesaid.

Ms. Rochman listed New Jersey and New York as states where theautomobile insurance systems are in dire need of reform.

Both Ms. Spragen and Mr. Zeman view credit scoring as an arealikely to see much activity in 2003. Mr. Zeman also said that theNAII will continue efforts at state level on the credit scoringissue. Those efforts include preventing regulators and lawmakersfrom imposing overly broad restrictions on insurer access to, anduse of credit histories for underwriting and rating purposes, hesaid.

In the AIAs view, workers compensation systems in Florida, NewYork and Texas need further regulatory improvement, Ms. Rochmanstated.

The AIA believes that privacy will continue to be an active areaof reform efforts, Ms. Rochman said. In this regard, she predictedthat California will see the introduction of even more privacymeasures in 2003.

Mr. Zeman noted that availability and affordability issues inthe current hard market cycle present crucial regulatory issues.Availability and affordability issues affect many lines ofinsurance, mostly on the commercial side, he said.

But the most affected line may be medical malpractice insurance,Mr. Zeman said, noting that the issue has reached crisisproportions in several states. While this issue has mostly involvedphysicians and hospitals, the NAII is starting to see nursing homesunable to find and afford coverage, Mr. Zeman reported.

He said that availability and affordability is a state-by-stateissue and battle, as regulators and insurers draw battle lines onhow to deal with more frequent and more exorbitant jury awards inmedical malpractice lawsuits that drive up insurance costs.

Mr. Zeman also noted that availability and affordability isbecoming a problem in the area of workers compensation.

E.E. Mazier is a former assistant editor at NationalUnderwriter who is now freelancing. She may be reached at[email protected].

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, December 8, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.