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Review and Outlook 2009-2010: Insurance Societies and Associations

State legislatures considered more than 40 bills that would ban or limit the use of credit-based insurance scoring. Why are we seeing restrictions on underwriting or pricing reemerge in so many states?
Robert Rusbuldt: The credit-based insurance scoring debate is not new; we have seen it and addressed it in the past.
As insurers increasingly rely on consumer credit histories and credit-related scores during the underwriting and rating process, the Big I has urged companies to proactively adopt and implement fair-minded and appropriate business practices regarding their use of credit information. We recognize that consumer credit information is a powerfully predictive tool for insurance companies, but independent agents and brokers firmly believe that such information must be used in sensible, balanced and consumer-friendly ways.
But while we support the use of underwriting and rating tools that foster enhanced competition and the fair and accurate pricing of risk, the policies and underwriting practices of some companies using credit information have been a problem for some consumers and agencies, resulting in legitimate concern and skepticism among policyholders, policymakers and independent agents and brokers.
We will continue to work with our state associations and company partners in the industry to ensure that credit-related information is used responsibly, particularly in this time of economic difficulty.
Charles Chamness: There are two main reasons. First, as the result of the larger political movement to establish term limits in state legislatures during the early part of this decade, we are now seeing increased turnover in legislatures. And we now know the issue of credit-based insurance scoring is not one that intuitively makes sense to the policymaker. It has to be explained. The efficacy of credit-based insurance scoring needs to be shown through studies, and all credible analytical studies show that insurance scoring is an effective underwriting and rating tool.
So there is a learning curve involved. When we deal with new legislators and new leadership of legislative committees, we have to help them understand how valuable it is to consumers and the industry as a risk-evaluation tool.
In addition, the hook that has been used by many who want to reignite this debate is the recession. Their concern is that the economy, which will cause declining credit scores and drive insurance underwriting and pricing. Again, we have presented evidence and heard from the experts–usually at the credit bureaus themselves–who say that this is not the case and that there should be no correlation drawn between broad economic trends and the effect on credit-based insurance scoring in the insurance market.
Dick Bouhan: Over the past 18 months to two years, there has been a dramatic shift toward a negative social mood in this country. It is the social mood, in my view, that drives politics and economics–not the reverse. The outlook of individuals has darkened. Pessimism permeates the nation's psyche. Class distinctions are now more and more the basis of political turmoil and the cause of social unrest.
As a highly regulated business whose underwriting tools–by their very nature–employ “discrimination,” the insurance industry and its underwriting practices are vulnerable to this new negative social mood, as reflected in the darkening attitudes of the state legislators, their constituents and regulatory bodies.
Many of the insurance industry's underwriting practices are now seen as unfair, unjust or just wrong when viewed through the prism of a darkened social mood. So it is not surprising that these practices are coming under scrutiny and criticism in federal and state legislatures.
This negative social mood still has a long run ahead of it, I believe. Consequently, the reemergence of legislative/regulatory proposals that would impose restrictions on underwriting tools will continue for some time.
Leonard C. Brevik: For two reasons: the recession and the fact that periodically new legislators are
elected at the state level who are unfamiliar with the issue.
According to many studies, the use of insurance scores allows insurance companies to give better rates to customers who are less likely to have losses.
But there are also studies that contend that the use of credit-based insurance scoring has a disparate impact on classes of individuals protected under the law–along with other studies that refute these studies, and say there is no such impact.
Many of the proposals we see in state legislatures that would ban or limit the use of insurance scoring are, no doubt, motivated not so much by objective facts than by a strongly-held belief that the practice is unfair. As the industry works with legislators to make its case in support of insurance scoring, opposition usually decreases. But then as new legislators are elected and recessions occur, we have to make our case again and again.

Bernd G. Heinze: The sea change experienced during the last election process also caused legislatures to examine the procedures and practices of the insurance industry more closely.
The issues of credit scoring, agent and broker compensation, proposed restrictions on underwriting and pricing, and plans to create larger governmental bureaucracies to handle what had historically been achieved by the private sector are all outgrowths of a public mandate to empower newly elected representatives and others who have been championing these ideas. It is nothing new–it is just receiving more attention and momentum.
Hearings and proposed legislation and regulations are happening for one main reason: to ensure that there is fairness and transparency in the access to and the purchase of insurance products and services. Clearly, regulations are necessary for the implementation of public policy and protection from unprincipled activities of those advancing an agenda other than that for which they were entrusted.
However, regulations and constraints must not be allowed to erect artificial barriers to the provision of innovative insurance products and services, creative pricing and other programs to benefit the consumer. At the same time, they also must not restrain the ability of insurance professionals to compete fairly and to achieve success earned through trust and relationships developed with customers.

2010 means midterm elections. For our industry, what are the key races to watch around the country?
Ken Crerar: When the Senate was controlled by a party with 55 votes or so, no matter which party was in control, pretty much anybody could stop anything significantly controversial from happening. With 60 votes in the Senate and a liberal consensus, we frankly worry about legislation with negative implications for our members and their clients. Health reform, for example, hasn't been headed to a good place, notwithstanding the fact that the Senate is more cautious than the House.
So we'll be watching to see if Republicans will be able to narrow the margins in both chambers, which could have a significantly moderating impact that we would welcome. Our concern is that on both sides of the Capitol, the seats that tend to be more vulnerable–Democratic senators in red states–tend to be held by moderates, or Blue Dogs. If we lose too many of those moderates, we fear that Washington could become more like Sacramento–polarized, with nothing much in the middle.
Brevik: More important than handicapping individual races is watching to see how pro-business candidates will fare. This requires examining Congressional races state by state and district by district to determine candidates' positions on the issues that are key.
From the perspective of PIA, federal lawmakers who also are former independent insurance agents make the best members of Congress. For example, Rep. Charlie Melancon (D-La.) is a former PIA member. He was instrumental in getting a provision into healthcare reform bills guaranteeing that agents are allowed to sell health policies offered through the proposed health insurance exchanges.
Bouhan: Sen. Chris Dodd (D-Conn.) chairs the Senate Banking, Housing and Urban Affairs Committee. Much of the legislation that impacts the insurance industry goes through that committee. Sen. Dodd could be in a tough race in November 2010. This is one to watch.
Rep. Paul Kanjorski (D-Pa.) chairs the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. He has sponsored many bills affecting insurance and is a major player in the debate over the creation of an Office of Insurance Information or Office of National Insurance. Kanjorski had a tough re-election battle in 2008 and could face a strong challenge in 2010.
Rep. Dennis Moore (D-Kan.), a member of the House Financial Services Committee, has emerged as a major player on insurance issues. He has sponsored many insurance-related bills, including the Nonadmitted and Reinsurance Reform Act of 2008, H.R. 2571. Though a Democrat, Moore represents a Kansas district that is nominally Republican. He has won his House seat in five straight elections.
Florida Gov. Charlie Crist is running for the U.S. Senate seat of the retiring Mel Martinez, a Republican. Although a Republican, Crist has not been too friendly to the insurance industry as Florida's governor and previously its attorney general. If he wins the Senate seat, he will likely be an advocate for some type of national catastrophic insurance fund.
Rusbuldt: Although it's a little early to predict which races will be the most competitive in the 2010 midterm elections, the Big I will continue to be actively involved on the campaign trail.
Independent insurance agents are known for being politically active at the local, state and national level. In fact, InsurPac, our association's federal political action committee, has grown to become the largest property-casualty insurance industry PAC in the nation and is one of our most powerful resources. InsurPac distributes 100 percent of its voluntary agent donations to U.S. senators, representatives and candidates for federal office.
The Big I and InsurPac have an impressive bipartisan track record in Congress and on the campaign trail. In the 2007-2008 election cycle, InsurPac distributed $1,631,500, and of the 241 candidates we supported, 222 won–a 92 percent victory rate. We're optimistic that the 2010 midterm cycle will bear similar results.
Chamness: At the federal level, Sen. Christopher Dodd, chairman of the Senate Banking Committee, is in a tight race for reelection in Connecticut. He is seasoned on insurance issues and has generally done a good job leading the Banking Committee, from our perspective. If Sen. Dodd were to lose his race, there would be new leadership in the Banking Committee, which would have repercussions for our industry.
Gubernatorial races also will be important in 2010, as 37 states have them. Florida deserves special mention among this group, as it lately has had a problem with populist politics, which have created severe challenges in the state's property insurance market.
Some of those problems will be solved when Gov. Crist moves off the state scene, perhaps onto the U.S. Senate. Both candidates for governor have experience on statewide insurance issues, and I believe both would be an improvement over the current governor.
Candidate Alex Sink is particularly interesting from the insurance perspective, in that she is a former banker and the state's current chief financial officer. I believe that she understands the mistakes that have been made in regulating insurance in the state, as well as the dangerous and distorted role that has been created for Citizens Property Insurance Corp., Florida's insurer of last resort, and the state's catastrophe reinsurance fund.
Heinze: All of them. At this time in our history every race is key.
Whether it is a race for the U.S. Senate, the House of Representatives, or state and local offices, each has an impact in determining the majority or coalition/filibuster-proof block of votes to advance legislative and regulatory measures. Each race can put into office–or remove–officials who do or do not properly represent the dynamic beliefs of the grass root voters who elect and financially support them.
The 2010 elections will be a performance measurement on those elected in 2008, especially in the progressive districts or states that are traditionally Republican-oriented but elected a moderate Blue Dog Democrat to Congress. It will provide a view of the public's perspective on the progressive events, laws and changes we have seen since that time.
More relevant than key races are the key issues and the positions the respective candidates have on economic growth, providing incentives to create private sector jobs, health care, the nation's involvement in Afghanistan and Iraq, cap and trade, energy, taxes, technology, national security and education, to name a few.
We are, however, closely watching the elections in several bellwether states.
We're tracking the gubernatorial races in California, Florida and New Jersey.
Among the U.S. Senate elections, we are focusing on the seats held by Sen. Christopher Dodd of Connecticut; retiring Sen. Mel Martinez of Florida; retiring New Hampshire Sen. Judd Gregg, whom Rep. Paul Hodes is bidding to replace; and Sen. Senator Arlen Specter of Pennsylvania.
In the House, we are following the races of Representatives:

o Melissa Bean and Bill Foster in Illinois

o Ron Klein, Suzanne Kosmos and Alan Grayson in Florida

o Joe Donnelly in Indiana

o Walt Minnick in Idaho

o David Vitter in Louisiana

o Gary Peters in Michigan

o Travis Childers in Mississippi

o Dan Maffei in New York

o John Adler in New Jersey

o MaryJo Kilroy and Steve Driehaus in Ohio

o Paul Kanjorski in Pennsylvania.

What is the biggest challenge your members faced in 2009, and what will be their biggest challenge in 2010?
Heinze: In 2009, AAMGA members faced competing with standard markets that had entered the wholesale space, often with cheaper rates, while managing through the economic downturn and the pressures of staffing–all while remaining focused on disciplined underwriting to maintain their relationships with their retail producers and markets.
The biggest challenge in 2010 will be to continue adapting to changes in the supply and demand for insurance products and services, reshaping the offerings for the new corporate entities evolving from the improving economy and enhancing professional development to distinguish one's self from the competition.

Wholesale agents and brokers will be prepared for the evolving requirements of business and private consumers by embracing the benefits of automation and technology, engaging with their colleagues to find new solutions to problems and sustain their operations.
Crerar: The biggest challenges faced by our members in 2009 will be pretty much the same in 2010–a fragile economic situation and the continuation of the soft market.
While the economy has begun to show signs of improvement, we still are not out of the woods, and I expect that we will still be feeling the effects of the recession through 2010. The economic climate has caused cutbacks in all areas of business spending and growth, and insurance is no exception.
When you add an ongoing soft market to the mix, our members feel the squeeze even more. The Council's last few Commercial Market Index Surveys have shown no sign of a market turn anytime soon, so we expect that 2010 will be another tough year.
Bouhan: In 2009, the soft market. In 2010, the soft market.
The surplus lines business is countercyclical. When the insurance market hardens, then standard/admitted companies are more selective in the risks they will write. As a result, insurance prices increase, and more business, or risks, flows into the surplus lines market. When the market softens, insurance prices decline, and the risk, or premium, appetite of the standard/admitted market companies increases. As a result, business flows away from the surplus lines market back into the admitted market.
The insurance market is now experiencing the soft side of the cycle, with declining prices and business flowing away from the surplus lines marketplace into the admitted market. Maintaining profitability in the face of lower premiums and a declining number of risks available for the surplus lines market to write is the major challenge that NAPSLO members face.
It appears that soft market conditions will continue to exist next year and for some time to come.
Chamness: Politically, the biggest challenge was clearly differentiating our member companies and our industry from those industries that caused the financial services crisis, thereby challenging us to explain to policymakers that we should not be grouped with the others when considering regulatory solutions to the economic crisis.
The biggest business challenge has been the soft market, combined with the investment losses the industry has suffered. Our industry was prudently invested in high-quality investments but still suffered a significant loss to its surplus. This compounded our heavy 2008 catastrophe losses, including those caused by Hurricanes Ike, Gustav and Dolly.
The challenges for 2010 are much the same, except that two factors on the business side have improved. We have rebounded from our investment losses, which has strengthened companies' balance sheets. We also have had few catastrophe losses, at least from hurricanes.
Rusbuldt: One of the biggest challenges the insurance industry faces is the graying of the current work force. Industry studies indicate that 60 percent of the workforce is now older than 45, and the average age of an insurance professional is 54.
Another concern is that as much as 50 percent of our industry–including owners, producers, support staff, company executives, underwriters, loss control and claims representatives–is expected to retire within the next 10 years. We need to increase our efforts to replenish our workforce before it's too late.
InVEST may be the program that saves our industry.
InVEST is a 501(c)(3) educational trust with the mission of improving insurance literacy and attracting new talent to the industry. The program provides the industry with young professionals from high schools and community colleges across the country through a support structure of insurance associations, a volunteer board, national staff, teachers and many industry professionals who work in the field as classroom liaisons.
InVEST showcases the vast array of opportunities afforded by the insurance profession in a team effort that trains the incoming workforce and provides opportunities for young people. A network of mentors, job shadowing programs, internships, and volunteers from every facet of the industry who speak at high schools and junior colleges are the backbone of InVEST.
The rewards will far exceed the effort as we strengthen our workforce and enhance the future of our business. The Big I is committed to InVEST and count on this program to replenish our ranks and secure the future of the industry.
Brevik: The challenge for 2009 has been surviving a severe recession, and for 2010, the challenge will be continuing to build for a successful future.
Although independent insurance agents have faced many serious challenges in the economic environment, including the soft market, agents have fared better than other segments of our economy during the downturn. Many people who were investment bankers probably wish they had become independent insurance agents instead. The insurance sector has remained stable and solvent thanks to prudent supervision by state insurance regulators. In addition, by their nature, Main Street insurance agents are more oriented to the kind of conservative business practices that enable agencies to better cope with financial instability.
We are very optimistic about 2010. Independent insurance agencies have gone through a period of retooling–of necessity. Agents are working harder and smarter. They have increased their efficiency by making better use of technology. As a result, independent agencies' segment of the market is strong and getting stronger, and agents are in a better position to benefit from improved economic conditions.

One year later, what lasting impact did AIG's collapse and federal bailout have on our industry? What were the key lessons learned?
Rusbuldt: The biggest lesson we learned from the AIG situation is that state insurance regulation works.
Despite efforts to turn this into a guilty-by-association situation, the relative health of AIG's state regulated insurance businesses proved how effective state commissioners are in regulating the insurance market, especially regarding solvency. State regulators also use a very effective safety net of state guaranty funds to protect consumers in the rare case of insurer insolvency.
Some had tried to spin the AIG case to argue for federal regulation of the rest of the insurance industry through an optional federal charter. Under an OFC, insurance companies would be allowed to pick and choose whether they would be regulated at the state or federal level. Insurance companies, obviously, would pick whatever system afforded the least amount of regulation, which could end up costing consumers and taxpayers. Thankfully, many policymakers have seen the fallacy of these arguments.
The evidence is stacked against federal regulation of insurance. Whether it's commercial banks, investment firms, or international holding companies–like AIG–historically, problems follow when the federal government oversees the financial services markets. The financial industry sectors at the center of the nation's current financial crisis are primarily regulated by the federal government. In fact, even AIG's parent holding company was overseen by a federal regulator: the Office of Thrift Supervision.
State regulation certainly is not perfect, and it clearly needs targeted reform to make it more uniform and efficient, but its problems do not include the areas of financial oversight, solvency or consumer protection.

Heinze: The lasting impact of the financial services industry's issues over the past year is that legislators, regulators and even our neighbors have cast insurance agents and brokers in the same light as other financial service providers currently remaining under scrutiny.
This is an extremely diverse industry. Throughout the last year of revelations and the economic impact of the greed, opportunism and failure of others, the wholesale property and casualty insurance industry has continued to provide the model of integrity and professionalism in its service to retail producers and their policyholders. Federal and state legislators and regulators had already placed the nature and scope of existing regulations under review; the issues of the past year accelerated that process.
The lessons learned have made it clear that the old days of laissez-faire and Darwinian capitalism are no longer going to be accepted. Markets work, and they must be allowed to work, but they will need the guidance of government to be resurrected from the devastating consequences of greed and unaccountability that put us in to the current circumstances.
However, the industry can ill afford to have arbitrary limits placed on the ingenuity of the very people and markets affording protection to the commercial risks, homes and businesses that comprise an integral part of our nation's infrastructure. Regulatory mandates, oversight and compliance are the government's prerogative. However, they are also our opportunity to ensure that our regulators and elected officials do not use them to constrain free market entrepreneurship and the innovative competition within the insurance industry to provide the products and services desperately needed to secure against known and unknown risks and catastrophes.
We need to continue educating federal and state regulators and members of their staffs on the unique services and benefits wholesale insurance agents and brokers, and the markets supporting them, provide. We have our work cut out for us.
Crerar: I think the lasting impact of the AIG issue and the larger financial crisis on our industry is an increased awareness of the lack of insurance regulatory expertise at the federal level.
There has not been an event since I've been in the industry–not even the 9/11 terrorist attacks–that has done as much to highlight the scarcity of resources available at the federal level to oversee how insurance business is conducted. Insurance is an integral part of the national and international financial services industry, yet we do not have direct representation by a federal regulator–no one looks at the big picture, and no one is there to advance sensible oversight. That will likely change in the future.
It is important to note that the issues at AIG were not caused by their property-casualty insurance subsidiaries, and we are hopeful that the spinoff of these operations will insulate them from their parent's future financial challenges. In addition, much has been made about the fact that the 250 or so operating insurance subsidiaries of AIG were well regulated for solvency, and that is true.
But, AIG's Financial Products division was collateralized by all of those insurance subsidiaries. We should remember, too, that only days before the feds intervened with the initial $85 billion bailout, the New York Insurance Department was preparing to upstream $25 billion in policyholder surplus to the black hole of the AIG parent. These are relevant concerns.
Chamness: The first observation–and we have been making it for a year now–is that AIG did not represent an insurance problem. And it did not represent a failure of insurance regulation.
I think the biggest lesson we have learned is that insurance companies, specifically mutual insurance companies, are among the best risk managers in all of financial services. Contrast the number of insolvencies within the property-casualty insurance industry, which was essentially zero, with the number of insolvencies and failures of other financial institutions, and you will see this.
In the other areas of financial services we saw failure. We saw lack of prudent solvency regulation. We saw businesses that forgot about the central role of risk management. The property-casualty insurance industry was really the exception.
Bouhan: The AIG fiasco tarnished the insurance industry's reputation and did irreparable harm to the industry's image. The damage to the U.S. insurance industry will take years to repair, if it ever can be.
Despite the fact that all 71 AIG insurance operating units survived the failure with little financial fallout and that the billions of dollars lost were due to the AIG Financial Products division's trading activities in credit default swaps, AIG was identified in the press and the public's mind as the “world's largest insurer.” As one commentator I heard put it, “insurance” is AIG's middle name. As a result, the AIG situation, with all its taxpayer “bailout” implications and bonus resentment, is and will always be identified in the public's mind with the insurance industry.
It is unfortunate, but the effectiveness of the state regulatory system that protected the policyholders of the AIG insurance operating units from the horrendous losses the financial AIG Financial Products Division incurred is getting lost as the story of AIG's bailout and bonuses unfolds.
The AIG story is a testament to the competence of the state insurance regulatory system. But, that story is not being heard over the other noise associated with AIG bailouts and bonuses.
Going forward for a number of years–even decades–AIG will be the bloody red flag that those who dislike or oppose the insurance industry will waive to rally opposition to their anti-insurance agenda. Even now, in Congress, in state legislatures, in op-ed pieces, those who wish to challenge or change industry practices or otherwise oppose the insurance industry invoke the three ignominious letters–AIG–to exemplify industry excess and failure.
The AIG companies continue as insurers in the marketplace. However, these companies are now backed by the U.S. government and taxpayer. How long these companies will continue to compete as, in effect, national insurers and what type of competitors they will be is still to be determined. But, for now–and it appears for some time to come–the insurance marketplace will include the U.S. government-backed AIG companies.
We certainly learned how dangerous and leveraged the various new derivative financial products that have been developed by Wall Street over the past few years can be. We also are now aware of how intertwined and interconnected the international financial system is and how it transcends international borders and the jurisdiction of the regulatory authorities of various countries.
However, the fact that too much debt can topple banks, industries, personal finances and governments is not a new lesson; it is simply one we re-learned.
Brevik: The key lesson learned was that state regulation of insurance worked, while federal regulation in banking and securities failed.
The more conservative approach to regulating insurance carriers as practiced by state departments of insurance proved itself superior to the lax, laissez-faire supervision of integrated financial services firms at the federal level. The problems at AIG existed in the area of the company that was engaged in trading risky financial instruments, such as credit default swaps. Fortunately, the insurance operations of AIG remained financially sound, because they were walled off from problem areas by the more stringent standards under state laws and regulations specific to insurance, such as strict reserving requirements.
Regrettably, the most lasting impact has been on the image of the insurance industry generally. AIG's problems led to a misperception that the entire insurance industry was experiencing similar problems, when it was not. This led some policymakers to argue that insurance needs to be federally regulated–in essence, taking insurance away from the state regulatory regime that protected it and transferring it to the same federal regulatory structure that led to the financial meltdown.
This incorrect but widely held perception also was seized upon by those who had always supported optional federal charters for carriers and agents to advance their position.

Has your group's membership grown or contracted over the past year? Why?
Crerar: Our membership levels have remained relatively stable since I joined the Council. This is due in part to the firms we attract–Council members are among the largest and most successful commercial agents and brokers in the world. It is also due, in part, to the value that we can offer our member firms through networking opportunities, advocacy efforts and a focus on delivering products and services aimed squarely at the commercial insurance marketplace. We strive to provide our members with the critical information they need to run their businesses and serve their clients. We will continue to adapt as those needs evolve.

Chamness: We are very fortunate to have experienced growth last year by all measures at NAMIC. We have retained our existing members at a rate exceeding 99 percent, which is common for us, but it occurred in uncommon times. We added 12 new high-quality member companies in the past year. And although there were some mergers, primarily among smaller mutual companies, the surviving company was retained as a member in every case.
From a revenue standpoint, we grew at a high single-digit rate during the past year. This growth has fueled new resources for our companies, particularly in our Washington office, where we have hired two new Democratic lobbyists this year to meet the increasing challenges to our industry on Capitol Hill.
The primary reason for our retention and growth success is the advocacy value that we provide, which our membership recognizes. We listen to their needs, and we respond using a democratic governance structure that is second to none. This has been a winning model for us for 114 years, and it will continue in the future.
NAMIC is now the largest trade association representing property/ casualty insurance companies. We represent more than 32% of the commercial lines market and 47% of the personal lines market in the United States. So whether you consider our members' dominant market share or our organization's 1,400 member companies, they truly set us apart as the leading advocacy and member services organization for property/ casualty insurers.
Rusbuldt: The number of agents, brokers and their employees that we represent is approximately 300,000. That number has been relatively stable over the years, although the number and size of our agency members fluctuates.
There has been significant M&A activity over the last 15 years, so our member agencies have grown in size. However, a new trend may be appearing, as we have experienced an increase in de novo agency memberships. It appears that agents have left some of the bigger operations to start new agencies. The thrill of entrepreneurship and ownership is still alive and well in the independent agency system.
Heinze: AAMGA's membership has remained constant over the past year. As some managing general agencies and insurance companies merge or are acquired, others meeting the admission requirements have been admitted. This trend is expected to continue positively going forward.
Bouhan: NAPSLO membership has remained stable over the past few years at about 1,100 offices. The association's membership has seen some consolidation, as a result of many wholesale brokerage firms merging with other. But, this has been offset by many new entrants in the surplus lines arena, particularly on the wholesale brokerage side of the business.
Attendance at NAPSLO's 2009 Annual Convention in early October was 2,850, which is only 10 percent less than the number who attended the 2008 convention. Some of NAPSLO's schools and other functions also have seen a decline in attendance this year, but nothing significant.
NAPSLO's leadership is quite pleased with the support the membership continues to give the association in the midst of the current difficult economic and business conditions. We believe this support is due to the value that members derive from NAPSLO's meetings, legislative representation at both the state and federal levels, educational opportunities and the contribution NAPSLO makes in promoting the value that wholesale surplus lines brokers bring to the insurance transaction.
Brevik: Nationally, our membership has remained stable overall. Some areas like Detroit are down due to the recession and the decline in the auto industry. But these are being offset by pockets of growth in some more vibrant markets.

Congress has considered a host of ideas about the federal government's role in regulating our industry. Will we see a federal regulator for insurance in 2010?
Bouhan: I think Congress passing legislation creating a federal insurance regulator is most improbable in 2010.
I can conjure only two scenarios in which a federal regulator for insurance would be created by Congress, and neither situation is likely to occur.
The first possibility is that Congress passes Optional Federal Chartering, or OFC, legislation such as the National Insurance Consumer Protection Act, H.R. 1880, sponsored by Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif. This legislation would establish a dual system of state and federal insurance regulation, like the regulatory system currently in place for the banking sector. Under this system of regulation, insurers could select their regulator, or charter, and be regulated under either the federal or state system.
As a result of the current financial crisis, the public policy of allowing banks and other financial institutions to select their regulators has been questioned . Critics complain that such a system actually helped cause the crisis. Thus, the prospect of passing legislation allowing insurers an opportunity to engage in regulatory arbitrage is not appealing to many in Congress. Consequently, the possibility of an OFC bill passing in 2010 is virtually nil.
The second situation that might lead to a federal insurance regulator is that one of the various proposals to establish an information gathering agency for insurance in the Treasury Department could be reworked to create an insurance regulatory agency.
Rep. Kanjorski has put forth the idea of an Office of Insurance Information being created in the Treasury Department, and the Treasury Department has offered its own version of such an agency in its Office of National Insurance, or ONI, proposal. Both of these plans would create a federal agency whose purpose would be to gather information about the insurance industry and work to coordinate insurance regulatory policy at the international level with some pre-emptive powers over state insurance laws.
Neither proposal, however, would establish a federal insurance regulatory agency, and it is highly unlikely that they would be reshaped and call for a federal regulatory agency or a federal insurance regulator. This would be too great a leap.
However, it is possible that such an information gathering agency, if established, could be the forerunner of a federal insurance regulatory body.

Rusbuldt: The current economic crisis reinforced the Big I's long-standing position in support of the state system of insurance regulation, albeit with needed reform. State insurance regulators deserve recognition for keeping the insurance market stable, and Congress should concentrate on targeted reform of the state regulatory system in the limited areas it is needed and not impose a takeover or weakening of state regulation by establishing federal regulation.
We continue to urge the White House and Congress to look at the state system as a model for other sectors. It's erroneous to try and include insurance with the financial service markets that actually perpetrated the crisis.
Those who are mistakenly pushing for federal regulation of the industry despite the failures at the federal level to regulate other financial services are trying to fix something that isn't broken. Their support clearly continues to dwindle, and it is unlikely that we will see a federal regulator for insurance in 2010, although we continue to advocate for federal legislation that implements targeted reform in the state system.
Crerar: I think we will see an expanded federal role in the regulation of insurance, but it's not clear that we will see a full-blown federal regulatory system in 2010.
Last year's financial crisis definitely increased Congress' and the Obama Administration's interest in the insurance regulatory system. The Obama Administration's financial regulatory reform proposal, released in June, included some proposals that would affect the insurance industry, notably by creating an Office of National Insurance, which the House renamed the Federal Insurance Office.
The ONI/FIO is based on a proposal introduced last year by U.S. Rep. Paul Kanjorski, D-Pa., chairman of the House's Insurance Subcommittee. It would oversee federal policy development on insurance matters and provide representation at the international level. While the proposal has run into opposition from some in the industry and the National Association of Insurance Commissioners, we think it will pass eventually and that it's a good thing for Congress to do.
The most interesting player we've noted is Sen. Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee. He wants to see a more engaged federal role in insurance regulation, and he historically has had an enormously productive working relationship with Committee Chairman Christopher Dodd, D-Conn.
Based on all this activity, it's clear that insurance regulation will be examined as a part of the larger financial services regulatory reform debate. The real question is whether there is the political will to forge ahead with a comprehensive federal regulatory option for the insurance industry.
Chamness: We need to define regulator here, but there will not be a new federal regulator in 2010.
NAMIC's position is in favor of a reformed system of state regulation–one that is more harmonized than the current system, and one that features open competition similar to the system in Illinois, which has not had rate regulation since the late 1960s.
I believe our position represents a consensus view of the industry and prudent policy.
But, I believe that some steps will be taken toward additional federal involvement, likely through the establishment of a new U.S. Treasury office that would provide information on the industry to the federal government and be involved in trade negotiations on insurance.
NAMIC supports this, as it was defined in the last Congress as the Office of Insurance Information, and we expect that something similar to this will result from current deliberations on financial services regulatory reform.
However, as is too often the case, Washington has a tendency to overreact, and we have concerns they may erect a new office that could potentially duplicate data calls and turn into a watchdog-type office if it is not thoughtfully developed.
Brevik: We will not see federal regulation of insurance in 2010.
PIA opposes federal regulation of insurance and supports our national system of state-based regulation. We believe that a federal insurance regulator is not necessary and would be counterproductive.
An expanded federal presence, in the form of a federal insurance office, is now being debated in Congress. The current proposal for an Office of National Insurance is overly broad and allows the federal government far too much latitude to preempt state insurance laws and regulations. The preemptions are supposedly to facilitate international agreements involving insurance, but the law as currently drafted does not contain sufficient restrictions on that authority.
At minimum, this legislation should restrict the preemption authority, limit the scope of ONI's activities to that of an information office and prohibit the office from lobbying Congress or the administration for an expanded mandate. We would prefer Congress take no action at all on this legislation.
We will also not see the enactment of an optional federal charter for insurers and producers in 2010.
Heinze: A lot depends on what Rep. Chairman Barney Frank and the House Financial Services Committee, which he chairs, do in their mark-up of bills on the calendar this session.
Based on the current prognostications, there will be a minimum of greater federal oversight of the insurance sector in 2010. Whether that will pertain to just the life and health segment or encompass the entire industry remains to be seen.
The nature, scope and parameters provided to an Office of Insurance Information, Federal Insurance Office or federal regulator and the extent to which these would pre-empt or usurp state regulation also remain outstanding issues.
Then there is the implementation and enforcement piece. The states must be allowed to continue the ongoing modernization and reform as the regulators of insurance who are elected or appointed and, more specifically, are accountable to the residents and insurance consumers of the states in which they also live and work.
State regulators must also ensure their efforts allow U.S. insurance markets to remain competitive in the global financial community. Recent developments with Solvency II and other initiatives require our financial institutions and insurance companies to remain competitive in the global marketplace and to have access to the same quality capital as other markets around the world.
With competition, one finds excellence. Sustaining excellence requires a commitment to continue evolving and changing with the events that shape the market and industry. That is how the free market works–it is not something that a federal regulator can or will inspire.

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