P-C Insurers Warned To Move Fast In Congress

Certainly, the top issue on everyones list early in the next session is class action reform, where an agreement in the Senate on S. 1751 should assure sufficient votes to overcome a filibuster which stopped the bill in its tracks in 2003.

"The most promising piece of legislation for the p-c industry is class action reform," said David Farmer, senior vice president of federal affairs for the Alliance of American Insurers in Downers Grove, Ill. "We expect it to come up rather quickly after Congress comes back."

The class action bill would establish federal court jurisdiction over many such suits, although in certain cases federal judges would have discretion to refuse jurisdiction and send the cases back to state courts.

A cloture motion on S. 1751 fell one vote short of the 60 needed to allow voting on the bill to proceed last fall, but three Democrats who voted against cloture continued to negotiate with supporters of the legislation and eventually reached an agreement. Mr. Parks noted that the specific legislative language of the agreement has not yet been released, but the compromise seems to be something that NAII can support.

Another major litigation issue is asbestos reform, which also could be set for early consideration. Gary Karr, a representative of the American Insurance Association in Washington, noted that Senate Majority Leader Bill Frist, R-Tenn., has identified asbestos reform as a high priority he wants to address by March.

However, Mr. Karr said, an asbestos bill must represent the right kind of reform, and it will be harder to reach an agreement similar to the one on class action reform.

Last year, the Senate Judiciary Committee approved asbestos legislation that would create a trust fund to settle asbestos-related claims out of court. However, the insurance industry opposed the bill, arguing that it was too expensive and did not contain firm assurances that asbestos litigation would end.

Currently, there are significant differences between what business groups are willing to put into a trust fund and what labor unions say is necessary for workers to be treated fairly. The insurance industry and business groups have agreed to about $110 billion in funding while labor unions are insisting on $154 billion.

"The process continues," Mr. Farmer said. "There is a need for asbestos reform. It remains to be seen whether the differences can be bridged."

Mr. Parks said that the insurance industry is united around a set of core principles that include certainty, finality and clarity. Any final legislation, he said, must provide benefits for the seriously ill but not become a Congressionally-mandated entitlement.

Mr. Parks said that NAII has serious doubts about the trust fund concept, adding that recent experience with trust funds is not encouraging. "We will try to work with the concept to see if it can be made viable, but we have grave reservations," he said. He noted that if there is "leakage," NAII will look at alternatives.

Mr. Winston added that beyond the size of the fund, there are several other issues that concern NAMIC, such as the allocation formula. NAMIC, he said, will continue to work with the industry coalition to try to resolve the asbestos issue.

A longer-term issue that will arise in 2004 is insurance regulatory reform. "This is a multiyear effort," said Mr. Karr of AIA, which supports optional federal chartering. "Were not expecting a bill to pass the House or the Senate in 2004." However, he said that a consensus seems to be developing that the insurance regulatory system is broken.

But Mr. Winston disputed the notion of consensus within the industry, stating that NAMIC is strongly committed to insurance regulatory reform at the state level and opposes federal regulation. If legislation is introduced, he said, it will likely be in the form of a discussion draft.

Mr. Farmer of the Alliance (which might be merging with NAII early this year) predicted that federal standards, rather than optional federal chartering, is the more likely candidate to receive attention. In addition, he said, the House Financial Services Committee will likely continue its oversight of state regulation and continue to challenge states to modernize their systems.

However, Mr. Farmer noted that the committee itself will be much more concerned with Government Sponsored Enterprises (like Fannie Mae) and mutual funds next year. "Insurance regulation will be taking a back seat," he said.

Mr. Parks added that insurance regulatory reform is still in the developmental mode and is not viewed by the national political parties as critical legislation prior to the election, but he agreed that the process is moving toward the possibility of legislation imposing federal standards on the states. NAII, Mr. Parks said, will evaluate any such approach and do what it can to shape the legislation.

Debate could also arise over the Terrorism Risk Insurance Program, Mr. Karr said. Even though the program is only in its second year, he said, Congress might want to discuss whether it should be extended to a third year.

Mr. Parks said that NAII believes that at a minimum, a federal backstop for workers compensation insurance must remain in place, and NAII is working with Treasury, Congress and the White House to bring that about. A federal backstop is necessary for workers comp, he said, because of the coverages mandatory nature and the potential for many victims to be aggregated in one place.

Another issue that must be addressed early in the session is reauthorization of the National Flood Insurance Program, Mr. Parks noted. In 2003, Congress approved a three-month extension of the program while it decides whether to institute reforms that would force people who file multiple claims to take steps to mitigate future losses. Mr. Parks said NAII would like to see the flood insurance program extended permanently.

Finally, Mr. Winston said that one of NAMICs biggest issues will be to address the small property-casualty company tax rules. Currently, legislation pending in the Senate would provide a tax exemption for p-c companies with less than $600,000 in revenue and which derive at least 50 percent of their revenue from net or direct written premium. Companies with between $600,000 and $1.2 million in revenue could elect to be taxed solely on their investment income. These thresholds would be indexed for inflation.

The House is considering legislation that would establish the same $600,000 threshold for tax exemption. The thresholds for the election would be between $600,000 and $1.89 million, although these would not be indexed for inflation.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 2, 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.