PCI Warns Against Insurer Overregulation

BOSTON–The head of the Property Casualty Insurers Association of America warned lawmakers against overreacting to market disruptions with government-run substitutes for disaster coverage that he said will do consumers more harm than good.

“The danger of overregulation is clear,” David A. Sampson, PCI's new president and CEO, said here during his first public address at the group's annual conference.

Mr. Sampson described the industry as one that is misunderstood and seen by many consumers as the enemy.

“When markets hit bumps in the road–like those we are experiencing in Florida and other catastrophe-prone states–it makes it easier for some public policymakers to say that government is better suited to making insurance products available and affordable than private insurers,” he said.

Mr. Sampson, who joined PCI on Sept. 4 after serving as deputy secretary in the U.S. Commerce Department, warned that “the concept of 'government to the rescue' can lead to unintended consequences, the most important of which is the undermining of the free market system on which our nation's economy is built.”

He added that “we have a better chance of solving these problems when government unleashes the innovative powers of the free market rather than unfairly restricting it.”

Mr. Sampson told PCI that before usurping the private sector, lawmakers should allow a number of “ideas to be debated, tested and allowed to work rather than resort to a 'government knows best' approach.”

Among the alternatives he suggested that in combination could help solve capacity and pricing issues better than excluding the private market are:

o Catastrophe bonds.

o High-deductible homeowners policies combined with guaranteed low-interest loans.

o Financial assistance to low-income insurance consumers.

o Financial incentives to build safer homes, as well as to retrofit existing homes to withstand the brunt of hurricanes and firestorms.

o Changes in the tax code to allow insurers to build catastrophe reserves on a tax-free basis.

o A well-structured public/private partnership between insurers and the state and federal governments to provide liquidity in the event of a catastrophic loss.

He added that one of the keys to making sure lawmakers enact sound public policy is improving the reputation and credibility of the insurance industry.

“We are a foundation industry, since nothing moves in the U.S. economy without insurance,” he said. “But we are also a misunderstood industry, and that results, in large part, from the very nature of our product, which is not tangible.”

In remarks in his prepared text that he was unable to deliver at PCI's opening session due to time constraints, but which PCI later cleared for publication, Mr. Sampson said too many consumers “perceive the industry to be their enemy–an unresponsive monolith of corporate greed that is more concerned about profits than people.”

In his speech text, he said “this public perception is symptomatic of a growing wave of economic populism nationally and consumer opinion about the industry in many parts of the country, especially in coastal areas prone to natural disasters.”

He cited the industry's poor image in “the aftermath of Hurricane Katrina” as one major cause undermining insurer credibility with both the public and policymakers.

“I am not na?ve enough to think the industry can wave a magic wand and convince the vast majority of the public to love us,” he wrote in his speech text. “But I do believe that by focusing on the fundamentals of our industry and through more effective communications with consumers and public policymakers, we can restore their trust in the industry and their respect for our contributions to personal safety and economic security.”

He conceded that “enhancing our public image and reputation will not be easy, nor will it occur overnight. But it is possible, and we must make this a priority for PCI and the industry.”