Elections Seen As Huge Win For P&C Insurers On Most Key Issues

WASHINGTON

The historic 2010 midterm elections were a huge win for the property and casualty insurance industry–and their allied reinsurers, according to representatives of several industry trade associations.

The only potential losers in the historic remake of the legislative map–both federal and state–are members of a group of the domestic commercial insurers who have been seeking to close a tax loophole enjoyed by offshore insurers, these representatives believe.

With strong industry funding behind the effort to oust Democrats running for Congressional seats in Mississippi and Florida, their defeat increased the likelihood that federal lawmakers could pass legislation favorable to p&c industry interests, providing a five-year reauthorization of the National Flood Insurance Program in the next Congress.

Specifically, Reps. Gene Taylor, D-Miss., and Ron Klein, D-Fla., lost their seats to Republicans Steven Palazzo and Alan West, respectively.

Rep. Taylor had pushed for the Multi-Peril Insurance Act, H.R. 1264, which would have added wind coverage to the NFIP, while Rep. Klein had been the lead sponsor of the Homeowners' Defense Act, H.R. 2555, which would have established a national catastrophe consortium and allowed the U.S. Treasury to make loans to state catastrophe funds.

Rep. Taylor had also pushed for language in any NFIP renewal bill that would prohibit insurers involved with the NFIP from using anti-concurrent causation language in their own homeowners policies–language that attempts to exclude coverage of wind damage when flooding also contributes to a loss.

He also supported language that would preempt state law by imposing added regulation and oversight of industry claims practices where damage is caused by both wind and flooding.

Provisions in both Louisiana and Mississippi exempting insurers from paying claims when both wind and flooding caused a loss–upheld by both federal and state courts–limited homeowners in both states from being fully repaid on claims resulting from Hurricanes Katrina and Rita in 2005.

The NFIP has been in limbo since its last long-term reauthorization expired Sept. 30, 2008. Since then, temporary extensions have run out a number of times.

It also reduces the likelihood that the Write-Your-Own program will be reformed, something the Government Accountability Office has proposed in a number of reports.

Moreover, Republican control of the House also likely ends efforts to limit or stop use of credit scoring as a tool in setting rates.

Some industry lobbyists believe Republican control of the House will "give them a seat at the table" in thwarting federal efforts to monitor the industry, although the federal government clearly has such authority through the Dodd-Frank financial services reform law.

On the critical issue of health care, the gains are not so evident.

Beth Mantz-Steindecker of Washington Analysis expects a "lot of noise, but little legislative enactment."

At press time, it appeared that Republicans picked up six Senate seats and 60 House seats, far more than enough to seize control of the lower chamber.

For the first time in a long time Democrats will control the Senate–by a small margin–and Republicans will own a huge majority in the House.

"It was an historic election," said Jimi Grande, senior vice president of federal and political affairs at the National Association of Mutual Insurance Companies in Washington.

There are several areas where election results "will have a very specific impact for p&c insurers," Mr. Grande said.

"The defeat of Rep. Taylor means that we have a renewed opportunity at meaningful NFIP reform without the looming bad policy proposal of wind inclusion," he said.

He added that the defeat of Rep. Klein, and the fact that at least eight new members of the Florida delegation are coming to Washington, means "the 'beachhouse bailout' can finally be put to rest as an idea and we can begin a conversation about creating a more sound solution based on market realities."

Mr. Grande said Rep. Klein "was a prime target" because of his support of the Homeowners Defense Act. "Trying to take Florida's mistakes and state-run pool and shifting them over to taxpayers isn't widely thought of as a reasonable solution to the problems of hurricanes in Florida."

Mr. Grande added that "these two defeats improve chances of a five-year reauthorization of the NFIP."

"That is the priority of the industry at the moment," he said. "We would also like to go back to building codes and having a good debate over how we make buildings stronger and safer."

"Voters made it clear: They don't want–or need–a government takeover of property insurance markets," said Eli Lehrer, national director of Heartland's Center on Finance, Insurance and Real Estate.

"Both Rep. Taylor's district and Rep. Klein's district are places where hurricanes are major problems," he said.

"Both men waged passionate efforts for their bills," Mr. Lehrer said. "But voters rejected them. This is a big win for taxpayers, the environment and common sense."

Leigh Ann Pusey, president and chief executive officer of the American Insurance Association, said the election was "driven by concerns about our economy, unemployment and deficits."

She said that "most immediately, AIA's efforts will remain focused on implementation of the Dodd-Frank financial reform legislation."

Ben McKay, senior vice president, federal government relations for the Property Casualty Insurers Association of America, also noted that various proposals to impose a tax on property and casualty underwriting as a revenue-raiser are now unlikely to surface.

He also suggested that the end of the Democratic majority in the House Financial Services Committee means there is little likelihood that restrictions will be imposed on the use of credit scoring as an insurance underwriting and ratemaking tool.

Democrats on the House committee had pushed for both legislation and Federal Trade Commission action on credit scoring. "Such controls would have made it more difficult for us to price our products," Mr. McKay said.

Regarding federal regulation, Mr. McKay said the industry is likely to ask the new Republican-controlled House to seek to limit federal oversight of p&c insurance companies.

Under the Dodd-Frank bill, the Financial Stability Oversight Council includes provisions that allow federal regulators to monitor insurance companies, and it is gearing up to undertake that role.

The law also created the Federal Insurance Office, and the Treasury Department has requested applications for people to head it.

"We now have a chance to participate in Dodd-Frank Act implementation because now there is a question about whether dual regulation is necessary–whether it is a job-killer or a job-creator," Mr. McKay said.

But Howard Mills, chief advisor for the insurance industry group at Deloitte, New York, has a different perspective.

He cautions that the significant turnover in insurance commissioners may offer the opportunity for the FIO to seize the initiative and take advantage of the loss of a lot of experienced commissioners at the National Association of Insurance Commissioners.

Some predictions are that there may be 25 new commissioners by the middle of next year.

In a conference call to investors, analysts at Washington Analysis also said they see other benefits of a stronger Republican presence in Congress.

Tim Vandenburg, energy and environmental analyst, said the chances of adverse changes to liability requirements as a result of the Deepwater Horizon disaster in the Gulf Coast "go down tremendously."

Financial Analyst Sam Leaman said the proposal by Rep. Richard Neal, D-Mass., to tax offshore insurers "is dead.

"The Bermuda insurers will not have to worry about paying more taxes," he said.

Regarding health care, Joel Wood, senior vice president for government relations at the Council of Insurance Agents and Brokers, said that "certainly" the new House will vote to repeal the health care reform law, but "there is no chance that Republicans could overturn a presidential veto of a repeal bill, even if one could be passed by the U.S. Senate."

As for "Plan B," the crystal ball gets cloudier, he said.

He said the law details 115 appropriations that are integral to implementation of the legislation.

"This, of course, raises the specter of major gridlock, and there is no clear path forward," he said.

"If we had to guess, we believe that Republicans will be able to muscle through a very limited repeal of onerous provisions of the law (centering, perhaps, on the 1099- reporting issue for small businesses), but not be able to go much further than waging a sustained public relations battle centering on the presidential election," he said.

Commenting on election results at the state level, Neil Alldredge, senior vice president of state and policy affairs for the National Association of Mutual Insurance Companies, said some state legislative races were downright surprising. For instance, Republicans gained control of the legislature in Alabama and North Carolina for the first time since before 1900.

The industry will have to sit back and wait for agendas to take shape because insurance is not normally a talking point during an election in most states, he said.

"There is going to be a major shift in the people in power, and that means that priorities will change," Mr. Alldredge said. "It is too soon to tell what that will mean, but we hope the changes mean we can get away from playing defense on issues like credit scoring and bad faith and move toward an offensive approach to make reforms."

As for the impact of gubernatorial races on commissioner appointments (detailed on page 7), he said that in most cases new commissioners are appointed even if the open governors' offices remain in the hands of the same political party.

"People want their own guy, and it is a natural place [for commissioners] to look for something else," he said. The office is typically considered a stepping stone in careers of appointees.

He said the timing of the transition to a new commissioner could differ from state to state. If a new political party won the governor's office, Mr. Alldredge said he can see a quick appointment. But if the office remains in the hands of the same party, a new commissioner might not be named as fast, he said.

(Additional reporting by Chad Hemenway.)