P-C Industry Split On Regulatory Reform

The property-casualty industry remains deeply split over regulatory reform and will deliver conflicting messages on Capitol Hill as Congress resumes debate on the hot-button issue--this time with increased urgency in the wake of 2008's financial meltdown, led by troubles at American International Group.

Deciding how financial services will be regulated will be the most important legislative issue in 2009, insurance officials agree, in what promises to be a busy year for Washington lobbyists, with the federal government controlled by Democrats for the first time since 1995.

With the new Congress convening on Jan. 6, and Barack Obama set to be sworn in as president two weeks later, "there is no shortage of issues that we will have to deal with," warned David Sampson, president and CEO of the Property Casualty Insurers Association of America--with extension of the expiring National Flood Insurance Program perhaps the most pressing short-term problem. (See accompanying story.)

However, for the long term, "regulatory restructuring will be the dominant legislative issue in 2009," said Mr. Sampson, echoing many of his trade association colleagues on both sides of this fiercely debate topic.

"That issue has the potential to affect the way the p-c industry does business for decades to come," noted Mr. Sampson. "If we don't get this right, all the other victories we may experience at the state or federal level will be significantly marginalized."

Citing this issue as a PCI priority in the new Congress and the new administration, he said that "our goal is to work with them to address the systemic risk issues and provide informed, data-driven analysis to them. We want to help them address the issues that really exist and not try to fix something that isn't broken."

While PCI has been fairly neutral in the debate over federal regulation, supportive of state regulation but open to possible alternatives, the rest of the industry remains polarized over this hot-button issue.

While Charles Symington, senior vice president of government affairs at the Independent Insurance Agents and Brokers of America, agrees that regulatory reform is "our number-one issue" for 2009, he said IIABA "will continue to oppose direct federal regulation of insurance--whether it be optional or mandatory. We believe it is a monumental mistake for certain organizations in the insurance marketplace to continue to push for an optional federal charter in this changed political climate."

However, he said IIABA will support legislation providing "targeted reforms of insurance regulation"--including creation of an Office of Insurance Information within the Treasury Department and recreation of the lapsed National Association of Registered Agents and Brokers.

Taking the opposite side of the issue is Leigh Ann Pusey, who will become president and CEO of the American Insurance Association in February, leading an industry group that wants an OFC.

"With insurance being an essential component within the broader financial services arena, we fully expect regulatory reform and the possibility of federal oversight of insurance to be part of the discussion in the incoming Congress," said Ms. Pusey, who has overseen AIA federal legislative activity since 1995.

"The debate is certain to focus on the need to monitor systemic risk on a national basis to ensure safety and soundness," she added, arguing that it's clear the current 56-jurisdiction patchwork of insurance regulation is "limited, as evidenced by the federal government's intervention with respect to American International Group."

She added that "we shouldn't fear more focused insurance regulation at the federal level that provides assurances to consumers that those companies are operating in a financially safe and sound manner."

However, she warned, "Congress should be careful to ensure that federal insurance regulation is flexible and responsive, not duplicative or bifurcated."

Another AIA reform priority is ending rate regulation of personal lines. "As with commercial lines, AIA believes consumers would benefit from an efficient uniform regulatory structure that encourages more insurers to enter markets and allows market forces--not the government--to establish the full range of price and product options that are available to those consumers," she said.

Jimi Grande, vice president of federal and political affairs at the National Association of Mutual Insurance Companies, said his group continues to oppose federal regulation.

"As the new Congress examines the failures and gaps in the financial regulatory system, NAMIC will work diligently to ensure that property-casualty insurers--and NAMIC member companies in particular--are not swept up in any overreaching legislation that could produce devastating repercussions for years to come," he said.

"Some have wrongly concluded that property-casualty insurance regulation must have suffered some type of failure. NAMIC contends that an objective examination of the evidence will lead to a different conclusion," he added.

"The truth is that the state-based system of insurance company solvency regulation is stable and reliable," according to Mr. Grande. "Sound solvency regulation coupled with prudent property-casualty company management enables insurers to provide their policyholders with needed protection even in a time of terrible strain."

Reinsurance Association of America officials say they will continue to back creation of an OFC, as well as legislation that won some support in Congress to create an Office of Insurance Information--a move that even some opponents of federal regulation support.

Officials from the National Association of Professional Surplus Lines Offices will focus on the unique circumstances in regulating their sector of the business.

"NAPSLO will convey to members of Congress the important role surplus lines plays in assuring that consumers have insurance coverage available to them and work to assure that this important supplemental market is preserved in any federal overhaul of financial services regulation," the group said.

NAPSLO officials noted their priority will be passage of legislation streamlining the premium tax payment process for multiline surplus lines risks, as well as simplifying compliance requirements on the placement of these insureds.