David A. Sampson, president and CEO of Property and CasualtyInsurers Association of America (PCI), is leading the 1,000-memberstrong P&C organization during a critical time in the industry.The Great Recession, Chinese drywall, federal regulation, andincreased governmental oversight all loom large. Sampson, whoadvocates the association's positions to state, federal, andinternational public policymakers, recently spoke with FloridaUnderwriter on a variety of topics.

Q. As the recent federal regulatory legislation was beingdrafted in Congress, you urged members to consider, "As [the draft]moves forward, we would reiterate that home, auto, and businessinsurers are not systemically risky and did not contribute to theexisting crisis. We believe that financial services regulatoryreform legislation should be carefully and precisely targeted toindustries that do present a clear systemic risk."

How hard has it been to separate the P&C part of financialservices from the umbrella definition and to try to head offunintended consequences? How much misunderstanding is out there?Are you wary of a backlash in which regulators could go too far intheir response?

A. It has certainly been a challenge. Much of the publicrhetoric has focused on the insurance industry in general, and someopinion leaders have not always been careful in their publicstatements to delineate the difference between the health insurancedebate and property casualty issues. We do continue to make thecase strongly — both publicly and in private conversations withelected officials — that home, auto, and business insurers clearlypresent no systemic risk, that we did not cause the existingcrisis, and that we are already well regulated at the state level.We do know that some very crucial players in this debate arelistening. However, there is still much work to do, particularly onsystemic risk and with the renewed push by some members of Congressto repeal the limited exemption granted to insurers by theMcCarran-Ferguson Act.

Q. The U.S. remains one of the few industrialized nationswithout a federal comprehensive catastrophe plan. Here in Florida,the state's Hurricane Catastrophe Fund entered 2009 unsure whetherit would be able to obtain financing in the municipal bond marketif needed. What is your take on our current condition following analmost storm-free season?

A. We are thankful that 2009 brought a quiet hurricane seasonwithout significant property damage in the U.S., but there is stillmuch work to be done in bringing long-term stability back tocoastal insurance markets. The end of the hurricane season remindsus that balanced insurance public policy at both the federal andstate level is critical for coastal residents and our economy. Thisis no time to be complacent. Experts agree that America still facesthe prospect of more frequent and severe natural disasters in thecoming decade, and, certainly, this increasing exposure to naturaldisasters is exacerbated by the dramatic increase in populationgrowth and the resulting growth in property at risk in the mostdisaster-prone areas in Florida and other states.

Q. As the statute of limitations plays out for hurricane-relatedclaims from the 2004-2005 storm seasons, insurance companies arefighting resurrected claims, many of which were paid and closed.This has brought the practices of some public adjusters underintense scrutiny. From your perspective, is Florida overly burdenedwith what are often deceptively encouraged, unethical new claims?What can effectively bring more protection for both consumers andcompanies?

A. Public adjusters need to be regulated in order to protect thepublic from fraud and incompetence. While many public adjustersmake many contributions to the claims process, the unethicalconduct of a few takes advantage of consumers and hampers theability of insurers to settle claims in an organized, timelyfashion.

Q. Mitigation is one of the universally agreed-upon ways tooffset the costs of storms' effects. However, mitigation fraud isregarded by many as a significant problem in Florida. The amount ofthe mitigation credits are also under scrutiny. How do you seeinsurers working through this balancing act?

A. This certainly is, as you describe it, a balancing act. Wehave always taken the position that strengthening homes is the No.1 solution to lowering losses after a storm. The mitigationmeasures must perform during any event and reduce damage to beeffective for consumers and insurers. We also believe thatconsumers save money not just through discounts, but alsoout-of-pocket due to lower losses under percentage-of-value winddeductibles. Further, we stress that discounts should be based onsound actuarial science, not done arbitrarily, and that the systemmust have credibility to function. Fraud is the enemy ofcredibility.

Q. Can you update us on the federal bills related to the Chinesedrywall situation?

A. There are seven federal bills that address that issue, butonly one appears to directly affect insurers. That bill is H.R.4094, introduced Nov. 7 by Rep. Charlie Melancon (D-La.). It wouldprohibit insurers from canceling or non-renewing homeowners'coverage based on the presence of drywall containing elevatedlevels of sulfur or strontium, or imported from China between 2004and 2007. The bill would also prohibit changes to homeowners'coverage and/or rates based on the presence of the drywall, and itcreates a private right of action against an insurer so doing. Atpresent, the bill has no co-sponsors.

Other federal bills include:

• H.R. 1728, introduced March 26 by Rep. BradMiller (D-N.C.), passed the House and has been referred to theSenate. It calls for a study on the effect of Chinese drywall onforeclosures.
• H.R. 1977, introduced by Rep. Robert Wexler(D-Fla.), would create a commission to study Chinese drywall andimpose an interim ban. S. 739, introduced by Sen. Bill Nelson(D-Fla.), is a companion bill to Wexler's proposal.
• H.R. 3473, introduced by Rep. Parker Griffith(D-Ala.), passed the House and has been referred to the Senate. Itwould allow loans to impacted homeowners.
• H. Amdt. 492 to H.R. 3854, introduced by Rep.Glenn Nye (D-Va.), passed the House and has been referred to theSenate. It would allow loans to homeowners for replacement.
• S. Res. 91, introduced by Sen. Bill Nelson(D-Fla.), would create a commission to study the issue, recalldefective Chinese drywall, prohibit its importation, and providetax incentives for repairs.

Q. Worries persist that we are about to experience a rough timein commercial real estate, mirroring the foreclosure nightmare inthe residential housing market. If that happens, how will it impactbusiness insurance? Is there any way to avoid or lighten thehit?

A. We can expect an increase in property claims, both from moralhazard (i.e., arson for profit) and morale hazard (i.e., reducedmaintenance, safety inspections), as businesses face increasedfinancial pressures. A drop in commercial property values willmagnify these issues. A similar increase in liability claims can beexpected as reduced maintenance and shortcuts are alleged in morepremises' claims and product liability claims. Reduced maintenance,training, and money pressure will be issues in some commercial autoclaims as well. Lightening the load for insurers will requirevigilance in underwriting, loss control, and claim processes.

Q. Your thoughts on Florida's auto insurance market?

A. We supported repealing no-fault, which occurred for 30 daysuntil it was re-enacted. We believe the residual market populationshould be kept low, and the market liquid and competitive. And weare always concerned about fraud. We support funding for morededicated PIP fraud prosecutors.

Q. In closing, give us your thoughts on 2010 and beyond. Whatshould our industry be focusing on as we ride out the currenteconomy?

A. One thing about the insurance business is that it teaches youto think with a long-term view. Loss exposures, especially on theliability side, last for years. Underwriters tend to think that waygoing in, then make incremental adjustments based on the short-termenvironment.

There are some silver linings in an economy like the currentone. The focus brought on by the current economic climate will helpinsurers confirm the financial stability of the businesses theyinsure. It will also confirm that insured values are appropriateand that business income coverages are at appropriate levels.Finally, this is an opportunity for insurers to work with insuredbusinesses on routine activities that can prevent premises,product, and auto liability claims. For insurers and insuredbusinesses alike, a slow economy can provide an opportunity toprepare entry of new markets and products so that they are ready togo as the economy returns to expansion.