As we bid adieu to 2009, many in the insurance industry are looking to the new year with greater optimism than they might have thought possible this time last year.

However, with uncertainty still surrounding the cornucopia of regulatory proposals pending in Washington, property and casualty insurers remain on alert for any new laws or regulations that might serve to increase compliance costs or–the worst-case scenario in the opinion of most–result in dual state and federal regulation.

The future regulatory landscape notwithstanding, there are plenty of other issues to keep insurers busy in 2010, including climate change, global regulatory developments and activity by the National Association of Insurance Commissioners.

But let's begin at the beginning.

January will see lawmakers in Washington and state regulators at the NAIC continue to grapple with the unresolved issues that dominated in 2009. With a plethora of federal regulatory bills up for debate, central questions remain:

o Will there be added compliance costs leveled at insurance companies and the consumers they serve?

o Will there be confusion and stresses put on the industry that weren't there before?

o Will there be overlapping, dual regulation between the state and federal levels?

I cannot predict the direction of the collective bills. But it is interesting to note what's on the plate.

While the discussion of state-versus-federal regulation of insurance has been going on for decades, the current round of reform bills is colored by the economic environment–which, in turn, prompted President Barack Obama's June 2009 U.S. Treasury financial regulatory reform report.

In it, the administration recommends several key initiatives, including bolstered consumer protection, the ability to coordinate federal policy on aspects of international insurance matters, and the flexibility to better manage systemic risks in the financial system, among others. Enter the competing House and Senate proposals.

o As of this writing, the Senate bill contains a Consumer Financial Protection Agency while the House bill does not.

o To cover the systemic risk question, the House bill includes a Financial Services Oversight Council that would allow one state insurance regulator to be a non-voting member. The Senate's Agency for Financial Stability would allow one "insurance expert" to join.

o The House proposal creates a Federal Insurance Office, while the Senate proposal includes an Office of National Insurance.

o Meanwhile, a resolution authority under both the House and Senate bills would include certain insurers and be post-event funded.

o A separate bill in the House keeps alive the thought of an optional federal chartering system for insurers, although it appears to have shifted to the back-burner in view of the larger systemic risk proposals under consideration.

The question over whether insurers can be deemed "too big to fail" is one I expect to be answered in 2010. I also expect that the industry will be challenged by increased capital standards and stringent new consumer protection mandates.

That said, the coming year will not just be about regulatory reform. Insurers need to be prepared to address other issues that are likely to affect the bottom line and their competitive advantage.

Issues to think about include revisions to the NAIC's Model Audit Rule, which holds new reporting requirements in 2011 for the 2010 reporting year.

Climate change is another big item, with a new climate change risk assessment survey by the NAIC requiring mandatory disclosure in 2010 for the 2009 reporting year for carriers with premiums over $500 million.

Also in the works at the NAIC are changes in deferred-tax asset rules and an amendment to the standard valuation law–both of which should serve to offer insurers some relief.

Global regulatory moves should also be on the radar screen, with important initiatives advancing–such as International Financial Reporting Standards and Solvency II (an updated set of regulatory requirements for insurers operating in the European Union). There are also regulatory cohesion efforts underway by the finance ministers of the G-20 governments as well as by the International Association of Insurance Supervisors.

The list goes on, but I predict 2010 will be a year during which smart examination and careful planning around current and proposed initiatives will set the groundwork for the near term, while laying the foundation for winning outcomes going forward.

The key for insurers is to be at the table and keep an eye out. As the great baseball player and philosopher, Yogi Berra, once said: "You can observe a lot by just watching."

Howard Mills, a former superintendent of the New York Insurance Department, is a director and chief advisor of the Insurance Industry Group of Deloitte LLP. He is based in New York and may be reached at howmills@deloitte.com.

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Reform Initiatives Will Make 2010 Challenging For Insurers

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