Insurers Prepare For Full Agenda Of Regulatory Challenges In 2003

In 2003, insurance industry groups will be focusing on a wide variety of regulatory issues, from implementing the federal terrorism reinsurance backstop legislation to beating back efforts to limit the use of credit history in underwriting.

With implementation of the complex backstop law heading the list of most insurance groups, Robert Zeman, vice president and assistant general counsel of the National Association of Independent Insurers in Des Plaines, Ill., noted that implementation falls to state insurance regulators and individual insurance companies.

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

According to Ms. Spragen, one challenge is that the legislation is drafted in public-policy terms. But insurance industry operations are based on forms and rates that are subject to state filing rules and regulatory review, leading to a number of technical questions for insurers, she said.

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

Ms. Rochman further noted that having a federal backstop in place does nothing to eliminate or minimize the risk of another calamitous terrorist attack. Nor does it guide insurers on how to price the risk of terrorism.

Another potential problem noted by Mr. Zeman is how far state regulators can go in regulating implementation of the backstop law without running afoul of preemption provisions built into the measure. He added that exclusions in insurance policies could present problems as companies try to comply with the new law and implementing regulations.

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

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

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

Ms. Rochman indicated that in terms of improving state regulation of insurance, the AIA will continue efforts to improve speed-to-market reforms. She also said that the AIA will continue to oppose the imposition of any new limitations, such as rate rollbacks.

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

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

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

Ms. Spragen said that one of the mold-related issues is spelling out who is a qualified mold remediator. This issue promises to be “front and center” in Texas and will likely come up in other states, 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 more crucial, Ms. Rochman said.

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

The Alliance will undertake similar efforts in Massachusetts, although Ms. Spragen noted that the automobile insurance issues there differ from those in New Jersey. “We are focusing particularly on the residual market as a starting point,” she said.

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

Both Ms. Spragen and Mr. Zeman view credit scoring as an area likely to see much activity in 2003. Mr. Zeman also said that the NAII will continue efforts at state level on the credit scoring issue. Those efforts include preventing regulators and lawmakers from imposing overly broad restrictions on insurer access to, and use of credit histories for underwriting and rating purposes, he said.

In the AIAs view, workers compensation systems in Florida, New York and Texas need further regulatory improvement, Ms. Rochman stated.

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

Mr. Zeman noted that availability and affordability issues in the current hard market cycle present crucial regulatory issues. Availability and affordability issues affect many lines of insurance, 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 crisis proportions in several states. While this issue has mostly involved physicians and hospitals, the NAII is starting to see nursing homes unable to find and afford coverage, Mr. Zeman reported.

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

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

E.E. Mazier is a former assistant editor at National Underwriter who is now freelancing. She may be reached at eemazier@iwon.com.

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

Special Reports /

Insurers Prepare For Full Agenda Of Regulatory Challenges In 2003

Related Stories

Recommended For You