Democrats emerged from last week’s historic election not only with control of the White House, but with a big enough majority in Congress to set the legislative agenda, with several critical insurance issues on the front burner–not the least of which is health care reform.
The first indication of how the new Congress will deal with insurance issues could come as early as Nov. 18, when members of the House Financial Services Committee question Treasury Department officials on their use of funds authorized under the Temporary Asset Recovery Program, passed in October.
Last week, the Treasury Department told insurers they have been ruled eligible for assistance under TARP if they have a federal regulatory link, such as a thrift charter or a bank holding company charter.
The life insurance industry has sought access to the funds, but property-casualty insurers are reacting with indignation, saying they have no need for a federal infusion of cash. The intra-industry rift could be on full display at the hearing.
President-elect Barack Obama is also expected to be asked to appoint members to join a liaison committee to work with current Treasury officials in drafting legislation that will be presented to Congress next year creating a federal regulatory system for insurance companies.
Among the challenges facing the new administration will be how to deal with American International Group, which has two federal financing agreements in place. The public owns nearly 80 percent of the company’s stock in return for a primary bridge loan of $85 billion.
Besides access to TARP funds and health care reform, insurance issues that President-elect Obama and the new Congress will have to deal with promptly include whether to change the regulatory system, reauthorize the National Flood Insurance Program, possibly create a national catastrophe insurance fund, and allow credit scoring in underwriting.
In a note to members of the Council of Insurance Agents and Brokers, Senior Vice President Joel Wood said that “regardless of the outcome of all of these races, the first order of business in the new Congress is going to be enactment of a comprehensive overhaul of financial services regulation, including insurance.”
Indeed, the “over-arching theme of this epic battle, set into motion by the collapse of AIG and other major financial institutions, will be the management of systemic risk–particularly in complex financial services holding companies,” he added.
“In multiple conversations with key congressional staffers and members of Congress in recent weeks, it is my belief that this battle will not be about the optional federal charter,” according to Mr. Wood, whose group backs an OFC.
Indeed, he said the word “optional” might not survive the legislative battle. “We are eager for this debate to be joined, excited about the prospects for some opportunities to improve regulation, yet wary about a potential federal overlay of laws that may do little to resolve the underlying inefficiencies of state-by-state regulation,” he added.
Last week, Sheila Bair, chair of the Federal Deposit Insurance Corp., disclosed that members of Congress had asked her to consider the possibility of creating an insurance program for federally regulated insurers.
Meanwhile, the National Flood Insurance Program, for which interim authorization runs out on March 4, is another key issue, with the debate focused on whether NFIP should be expanded to include wind coverage–a move strongly opposed by the insurance industry.
However, as Mr. Wood noted, the inability of Democrats to attain a filibuster-proof majority in the Senate is likely to continue to give virtual veto power over initiatives he opposes to Sen. Richard Shelby, R-Ala., ranking minority member of the Senate Banking Committee.
Mr. Wood said that Sen. Shelby has been “a particular critic” of proposals to create a federal reinsurance backstop for natural catastrophes, or adding wind to the NFIP program. “As it stands, his power appears to remain undiminished,” he added.
However, health insurance reform could potentially be the biggest battle President-elect Obama faces next year. The outcome would be of keen interest to property-casualty agents and brokers, who are generating a growing percentage of their revenue from the sale of group benefits. Any changes in the health insurance system could also impact the medical portions of workers’ compensation and auto insurance.
“While we have been gratified at [President-elect Obama's] many references to preservation and enhancement of the employer-provided group health care marketplace, his proposed creation of a federal alternative health plan–if not crafted appropriately–could drive employers away from offering coverage, particularly if there are massive new and expensive mandates,” Mr. Wood warned.
He said the CIAB–whose membership sells so much health coverage that the association produces state of the market surveys and hosts an annual Employee Benefits Leadership Forum–plans to be “highly aggressive on this issue,” including working with allies in the business and health insurance community.
One definite change for the Senate Banking Committee will be the opening created by the defeat of Republican member Sen. Elizabeth Dole of North Carolina.
Also defeated was Sen. John Sununu, R-N.H., who joined with Sen. Johnson to sponsor legislation creating an optional federal charter for insurers. He left the banking panel earlier this year to become a member of the Finance Committee.
Less extensive changes are expected in the leadership of the House. Rep. Paul Kanjorski, D-Pa., current chair of the Capital Markets Subcommittee of the House Financial Services Committee, will retain his position after winning a 13th term.
However, Rep. Tim Mahoney, D-Fla.–one of the sponsors of H.R. 3355, the Homeowners’ Defense Act of 2007, which would create a comprehensive system of state catastrophe funds and a federal disaster backstop–was defeated by Tim Rooney, a member of the family that owns the Pittsburgh Steelers, after being exposed in an infidelity scandal.
H.R. 3355 is dividing the property-casualty industry, with some insurers and trade groups supporting it, but others in strong opposition to direct federal involvement in the catastrophe market.
Rep. David Dreier, R-Calif., is expected to be named by the House Republican leadership as the new ranking minority member of the House Financial Services Committee. He would replace Rep. Spencer Bachus, R-Ala., the current top-ranking Republican on the panel.
Rep. Dreier is in his 14th term and is currently the ranking minority member of the House Rules Committee. He was a top-ranking member of the Financial Services Committee for several years, and retained his seniority on the committee when he left to chair the House Rules Committee when Republicans controlled Congress. Rep. Dreier is seen as a strong supporter of an optional federal charter.