The House health care reform bill is a "trial lawyer's dream" that could have some degree of a "spillover effect" on the property and casualty industry, according to Insurance Information Institute President Robert P. Hartwig.
Indeed, he said the industry is locked in an "era of no tort reform" that began in 2006, warning that a tort crisis could be on the horizon by 2012-2014.
He also said regulatory reform in financial services could dramatically change how insurers are overseen by the federal government, even though p&c carriers came out of the financial crisis in excellent shape.
"What happens this year and next in Congress will affect you throughout your insurance careers and perhaps those of your children and grandchildren as well," he said.
Mr. Hartwig delivered his take on the challenges ahead for the industry during a speech at The National Underwriter Company's 21st Annual Executive Conference for the Property and Casualty Industry, sponsored by Ernst & Young and Genpact.
Regarding the health care bill, he said the Congressional Budget Office estimated that $54 billion can be saved by implementing medical malpractice tort reform, but the authors of the bill left out such reforms.
Additionally, Mr. Hartwig noted a provision in the bill that establishes an incentive program for states to adopt and implement alternatives to medical liability litigation. However, an addition asserts "a state is not eligible for the incentive payments if that state puts a law on the books that limits attorneys' fees or imposes caps on damages"–two reforms long sought by medical malpractice carriers.
The bill also grants the Federal Trade Commission authority to conduct studies "related to insurance," noted Mr. Hartwig, who stressed there is no language limiting that authority to just health insurers.
In fact, he called efforts to repeal the McCarran-Ferguson Act's limited federal antitrust exemption for health insurers a "slippery slope" that could find its way to p&c one day.
In general, with the mood of the nation trending toward populism and government expansion, Mr. Hartwig said the industry should be prepared to defend current personal lines underwriting criteria such as the use of credit information and education/occupation.
He said the feeling among some is that government can do a better job insuring risk than private insurers, pointing to suggestions to include wind coverage in the National Flood Insurance Program and the increased amount of risk taken on by state residual market plans.
In 1990, Mr. Hartwig said, around $54 billion of risk was in these plans. Now that number has grown to close to $700 billion.
Regarding the state of the industry, Mr. Hartwig said the economy is in the early stages of recovery, adding that it will take longer to get out of the recession than it took to get in. Still, he said, the economy is no longer shrinking, the pace of jobless claims is slowing, housing seems to be bottoming out, and there is some stabilization in retail.
He noted, however, that improvement in the economy alone won't pull the insurance industry out of the current soft market cycle. He said the insurance cycle is not tied to the economy and never has been, explaining that soft and hard markets have occurred previously during both recessions and recoveries.
Mr. Hartwig also said private business starts are still at depressed levels, which impacts the number of insurable risks for lines such as workers' compensation. Although credit has loosened up, he said, it has not yet reached "Main Street."
For the next 10 years, Mr. Hartwig said insurers should be thinking about entering growing sectors such as government, education, traditional energy, alternative energy, agriculture, natural resources, environmental protection, technology and light manufacturing.
He added that health care will be an important line for insurers over the next 10 years, and will make up one-fifth of the U.S. economy by that time.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.