Republicans Rule, But P-C Bills Face Hurdles

Washington

The property-casualty industry enters 2005 aware that Washington is sympathetic to its federal legislative and regulatory priorities and that it backed the right horses in the 2004 election.

However, the question remains whether Congress will get tangled up with the many industry issues that have accumulated over the last several years. Indeed, the industrys agenda might get lost in the shuffle as Congress deals with issues President George Bush sees as key to his legacy, such as changes in Social Security and making permanent tax cuts enacted during his first term.

The Bush administration has made it clear it wants two of the industrys top prioritiesreform of the medical malpractice laws and class action lawsuitshandled promptly in the new Congress, and they are also a top priority of Senate Majority Leader William Frist, R-Tenn.

However, Sen. Arlen Specter, R-Pa., incoming chairman of the Senate Judiciary Committee, is insisting on an ambitious timetable for dealing with the complex issue of creating an alternative claims processing system for victims of exposure to asbestos, seeking to put such legislation on the Senate floor in late January.

Meanwhile, industry efforts to have Congress wrestle with regulatory modernization promptly could be affected by the effort to contain the damage created by evidence brought out in state investigations of conflicts of interest and other improprieties by insurance brokers and carriers.

In addition, the industry believes the priority should be on extension of the Terrorism Risk Insurance Act because it expires at the end of 2005, but its not clear Congress shares its sense of urgency, leaving carriers and insureds hanging.

The industry may get a boost on its TRIA concerns from Democrats. At a recent conference, Rep. Paul Kanjorski, ranking minority member of the House Capital Markets Subcommittee, said action on TRIA should be a priority of the Financial Services Committee. Although the program was created as a bridge while the private market for terrorism insurance developed, that has not quite occurred, he conceded. “I believe the private market has not come back,” he added.

With the program scheduled to expire on Dec. 31, “extending TRIA is imperative” for continued economic growth, Rep. Kanjorski added.

Dennis Kelly, a representative of the American Insurance Association, said the industry is acutely aware of the political problems ahead that could delay or torpedo its agenda.

“TRIA, class action, asbestos and regulatory reformall are critically important to us,” he said. “But given that TRIA has timing issues associated with it, extending the backstop against catastrophic terrorism losses has taken on more immediate urgency With the legislation expiring at the end of the year, it is very important that Congress act quickly and send a bill to the president for his signature to avoid marketplace disruption.”

However, achieving that goal might be complicated by the fact that there are many new members of Congress coming in this month, which may delay action on the industry agenda, he said. “We will have to work to get those agenda items, and we will continue working with the House Financial Services committee on regulatory reform,” he said, adding that it is too early to tell if the broker fee abuse and bid-rigging probe will have an impact on the congressional agenda.

Regarding the brokerage scandals, Charles Symington, senior vice president of federal government affairs at the Independent Insurance Agents & Brokers of America, said his group anticipates there will be additional congressional hearings into the controversy.

Indeed, “as the investigation by New York Attorney General Eliot Spitzer broadens, and as other state attorneys general and insurance commissioners conduct their own investigations, we believe that Congress will take notice and also look into the issues surrounding producer compensation,” he said. “I expect hearings to be held, but whether Congress goes beyond its oversight capacity into its legislative capacity is too early to tell. We will have to wait and see what the next three months bring.”

Mr. Symington doesnt believe the broker investigation will delay House action on the SMART (State Modernization and Regulatory Transparency Act) regulatory reform legislation, which would set federal standards for state insurance commissioners to implement. “I believe that the Financial Services Committee will do its work on SMART and make changes as necessary as developments continue in the state investigations into the insurance marketplace.”

Mr. Symington believes that reforms dealing with medical malpractice and class actions are “two issues that certainly are more likely to be passed now that Republicans have increased their majority in the U.S. Senate,” adding that the odds have improved for asbestos claims reform, as well. “All in all, tort reform will be at the top of the list for the insurance industry in the next Congress.”

He pointed out that President Bush, in his first press conference after the election, mentioned medical malpractice reform as a priority, noting that “class action is also on the administrations short to-do list.”

Joel Wood, senior vice president for government relations at the Council of Insurance Agents and Brokers, believes the state of the insurance market in the next six months will determine if and when Congress acts to renew TRIA. “The Treasury Department by statute must complete its findings as to whether the program is working by June, and we will know by then whether there are massive policy exclusions for terrorism coverage beyond Dec. 31, 2005,” Mr. Wood said.

“Class action reform is going to occur,” he added. “The votes are there and the administration support has been unwavering. The central focus of that bill is the federalization of multistate class actions. There may be other things, but the main focus will be eliminating jurisdiction-shopping. That will be a great achievement.”

Regarding asbestos, an industry lobbyist who asked not to be named because of the sensitivity of the issue said that Sen. Specter may be able to introduce a bill when Congress returns to work on Jan. 4, but floor action on the bill is unlikely as promptly as Sen. Specter has proposed.

“Sen. Specter controls the Judiciary Committee agenda, but Majority Leader Frist controls the floor timing. Will Sen. Frist want this to be the first [issue] out of the box? And the White House?” the lobbyist said. “I believe the White House wants medical malpractice to be first out of the box. My guess is that medical malpractice and class action will be teed up much earlier in this session because many more businesses are affected by that than by asbestos.”

Regarding the Spitzer-initiated probe of the brokerage industry, David Winston, senior vice president of federal government affairs for the National Association of Mutual Insurance Companies, said Congress has not yet determined a federal response to the investigation.

“There could be hearings,” he said. “It depends on further developments.” Regarding an optional federal charter and the SMART Act, Mr. Winston said the direction Congress will take on those two options is also unclear. “The industry is completely splitsome want SMART, some want the [optional federal charter],” he said. “This could affect progress on federal modernization initiatives in the coming Congress.”

“You can contrast that situation with the unity on TRIA, where there is broad support within the industry, or on class action reform legislation,” he noted. “Because there is consensus, the prospects for legislation improve dramatically. Passage will still be a tough challenge, but the fact there is a united industry increases the likelihood of passage of both bills in 2005.”

Reproduced from National Underwriter Edition, December 30, 2004. Copyright 2004 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.

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Republicans Rule, But P-C Bills Face Hurdles

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