Filed Under:Agent Broker, Coverage Issues

Old issues, New Congress

The arrival in Washington, D.C., of a new Congress can change prospects for legislation, except when it does not.

As the makeup of Congress changes in January 2011, a quick review of the prospects for legislation of particular interest to agents is in order. Any analysis must be tempered by the fact that it is impossible to predict exactly what will happen on Capitol Hill. Educated guesses, however, can be made.

Read November's Legislative Roundup on litigation financing, "A questionable practice."

The results of the 2010 election could increase, rather than decrease, the chances of protracted gridlock on Capitol Hill. That said, let's look at the potential prospects of some issues of particular concern to professional insurance agents in light of the new lineup.

Healthcare reform

Some of the candidates in the 2010 elections ran on platforms calling for the repeal of the PPACA. How likely is this? We could see efforts to dismantle, disengage or defund key elements of healthcare reform; but the chances for a wholesale repeal are questionable at best due to the fact that we will now have, for at least the next 2 years, a period of divided government.

It is a foregone conclusion that any broad repeal of the healthcare law would be vetoed by President Obama. In addition, many elements of the law are popular with voters, such as the ban on exclusions for preexisting conditions, the ban on lifetime limits on benefits, guaranteed issue--the list goes on. The implementation process already has gone far. Many changes mandated by the bill already have been made and most others are set to be phased in over the next few years. And while there are numerous pending court challenges to key elements of PPACA, such as to the constitutionality of the individual mandate, lower court rulings have been contradictory.

Still, a repeal of or substantial changes to PPACA is possible--but not for 2 years, at least.

Significantly, the PPACA did not become an excuse for federal regulation of insurance, as the NAIC and state insurance commissioners were tasked with primary responsibility for much of the implementation, which will occur on the state level.

1099 requirement

There are, however, certain elements of the PPACA that could garner enough bipartisan support for repeal. One is the requirement for 1099 reporting. It requires that businesses of all sizes file a 1099 form with the Internal Revenue Service reporting any purchases they make of goods or services of $600 or more in a tax year from any individual or business, including corporations.

"This provision will bury small business under a mountain of needless paperwork," said PIA National Executive Vice President and CEO Leonard C. Brevik, adding that the provision will distort the marketplace by driving purchases away from small businesses. "The IRS is already working on procedures to implement this expanded 1099 reporting requirement. We need to work hard to kill it."

The U.S. Chamber of Commerce, the National Federation of Independent Businesses (NFIB) and a host of other small business organizations are urging prompt repeal of this provision.

The 2010 election results prompted President Obama to signal willingness to compromise on the 1099 provision. Action could come as early as a lame-duck session of Congress. That means that by the time you read this, the enhanced 1099 requirement may have already been repealed.

Flood insurance

In 2010, Congress continued to do what it has done for the better part of the previous decade: treat the National Flood Insurance Program like a political football. This year, Congress permitted the program to expire four times, passing a series of reauthorizations that at times extended the program for as little as weeks or months. Of course, expirations play havoc with real estate transactions, freezing many of them in the midst of a bad recession. Professional insurance agents are placed in a bind because they can't sell what their clients want and need.

Despite the recurring gridlock on NFIP reauthorization, there actually is widespread support for the program in both the House and the Senate. So what's the problem?

A relative handful of lawmakers want the NFIP to offer policies that cover wind risks in addition to flooding risks. PIA is opposed to this because wind insurance is covered under homeowners insurance policies and statewide wind pools. Including it in NFIP policies would undercut the private market for this coverage, causing legal conflicts. It could have the unintended consequence of reducing wind coverage options.

Rep. Gene Taylor (D-Miss.), best known for his continual efforts to add wind coverage to the NFIP, lost his race for re-election. Many times over the past several years, meaningful reforms to the NFIP didn't pass due to his personal campaign to add wind to the flood program. With Taylor's departure, a big obstacle has been removed and a comprehensive reform package including a long-term renewal of the NFIP may be possible in 2011.

In 2010, the House passed the Flood Insurance Reform and Priorities Act of 2010 (H.R.5114) on an overwhelming bipartisan vote of 329-90. The size of the vote, especially in the hyper-partisan atmosphere in Congress, demonstrates very broad support for the NFIP. H.R.5114 made a series of much-needed reforms to the program and provided for a 5-year extension. PIA supported it, but it died in the Senate. What ultimately passed was a 1-year extension without reforms. The outlook for a bill similar to H.R. 5114 is better in the 112th Congress.

OFC again

Professional insurance agents have remained steadfast throughout the years in support of state regulation of insurance and in opposition to efforts to advance federal regulation. In 2010 agents largely held the line, but 2011 will see a renewed battle.

The so-called "optional" federal charter (OFC) for insurers and producers was not included in the financial reform bill that passed Congress, but the proposal will be debated again in 2011 on Capitol Hill. OFC is being pushed by narrow economic interests that stand to benefit by getting the federal government to allow them to evade the kind of prudent, state-based supervision that saved the insurance industry from the financial meltdown.

Read Ted Besesparis' previous column, "The OFC that wouldnt die."

The general assumption may be that the GOP gaining more power means that only good legislation will result for independent insurance agents, but in the case of OFC the picture is more complicated. While many Republicans oppose expansion of federal regulation as a matter of philosophy, some who are more aligned with banking interests have embraced federal encroachment into the insurance industry.

The ongoing push for federal regulation of insurance reached its zenith with former Treasury Secretary Henry Paulson's Blueprint for a Modernized Financial Regulatory Structure. Its insurance proposals stated that our industry should be "prepared" for assimilation into a unified, federally regulated, global financial services sector. In other words, people in the insurance industry would all end up working for the banks.

But something unexpected happened on the way to Paulson's "new world order": the financial collapse. Big banks and major securities firms whose irresponsible risk-taking nearly destroyed the world's economic system either collapsed or were bailed out by the taxpayers. But the allegedly broken state-based insurance regulatory system worked well, with policyholders never losing protection.

One of the messages conveyed by voters was a desire to reduce regulation at the federal level. The 2010 election bodes well for those opposed to a takeover by the federal government of insurance regulation from the states, as some have proposed. Lawmakers elected on a strong platform of opposing federal expansion and encroachment will have a hard time supporting proposals calling for more expansive federal regulation through optional federal insurance charters.

A better climate for legislative advances benefitting independent agents is always welcome. In fact, it would be great to be able to shift focus completely and concentrate on nothing but advancing positive proposals, but we're not there yet. In the interim, agents must remain on guard to ensure that their interests are being protected, no matter who is in charge on Capitol Hill.

Read November's Legislative Roundup on litigation financing, "A questionable practice."

Read Ted Besesparis' previous column, "The OFC that wouldnt die."

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