Massachusetts’ top insurance regulator recently spoke about the state of the insurance industry in Massachusetts, with topics ranging from the auto insurance marketplace and the Biggert-Waters Flood Insurance Reform Act to Boston bombing insurance claims.
Speaking at the Massachusetts Association of Insurance Agents’ (MAIA) annual convention event on Nov. 8, Insurance Commissioner Joseph Murphy applauded the insurance community — the insurers and producers who have stepped up to the plate and made their consumers whole following a variety of disasters over the last few years.
Commissioner Murphy noted that the Massachusetts insurance market is a $43 billion industry, representing the 11th largest market in the U.S. and the 26th largest market in the world. The insurance industry in the Bay State directly employs more than 100,000 people, he said.
Auto Insurance Marketplace
Commenting on the state’s increasingly competitive auto insurance marketplace, Commissioner Murphy said new companies continue to show interest in the state’s marketplace, with two additional companies entering this year.
He said consumers are benefiting from more insurers to choose from and new, innovative products, while the residual market is at an all-time low as companies compete for that business.
And while auto insurance rates are trending upwards both in Massachusetts and across the country, the average expenditure for auto insurance in Massachusetts is still lower compared to what it was during the pre-reform period in 2007.
The Massachusetts Division of Insurance continues to engage in market conduct analysis to ensure that companies are playing by the rules on a level playing field and consumers are being treated fairly, he said.
Biggert-Waters Flood Insurance Reform Act
Commissioner Murphy also spoke at the MAIA event about the controversial issue of federal flood insurance reform.
“Many of you are fielding calls from your clients about flood insurance. I’m fielding those calls too, from legislators, other commissioners and of course consumers,” Murphy said. He said the remapping of the flood zones and the Biggert-Waters Flood Insurance Reform Act of 2012 — which has been designed to repair the financial standing of the National Flood Insurance Program (NFIP) — have put some consumers on a collision course with higher flood insurance premiums.
He noted that in late October, a bipartisan coalition in Congress introduced “The Homeowner Flood Insurance Affordability Act,” which would delay some rate hikes and require the Federal Emergency Management Agency (FEMA) to complete an affordability study and propose regulations addressing affordability issues. The regulations would need to be proposed within 18 months of the study’s completion, followed by a 6-month period for Congressional review.
He said FEMA has estimated it will take two years to complete the affordability study before regulations can be issued and reviewed by Congress, which suggests rate hikes could potentially be delayed for approximately four years. The bill would also establish a Flood Insurance Rate Map Advocate within FEMA to address policyholder questions.
But there are some potential challenges to passing this legislation. Those challenges could include devising an offset to cover the potential costs of delaying premium hikes and working with some Congressional members who would oppose efforts to move away from establishing actuarial rates for the NFIP.
Commissioner Murphy said the realtors and home builder groups have shown support for this new bill while the Reinsurance Association of America (RAA) and National Association of Mutual Insurance Companies (NAMIC) are asking Congress to stay the course on implementing Biggert-Waters.
He also noted that on Oct. 11, federal banking regulators issued a notice of proposed rule-making to implement a Biggert-Waters requirement which instructs regulated lenders that private primary flood insurance must be accepted as an alternative to the NFIP in meeting the federal mandatory purchase requirement.
The rule proposes a safe harbor which allows banks to rely on the determination of a state insurance regulator, he said. Under the safe harbor, a flood insurance policy would meet the definition of private flood insurance if a state regulator determines in writing that the policy meets the definition in Biggert-Waters. Comments on that proposal are due Dec. 10 and National Association of Insurance Commissioners (NAIC) members are discussing how best to respond to the rule-making.
Boston Bombing Claims
Commissioner Murphy also provided an update on the insurance claims that arose from the Boston Marathon bombing tragedy.
Regarding the claims figures, he said the Division of Insurance’s recent data calls on the Boston Marathon attacks reflect incurred losses on the property/casualty side of approximately $2.5 million and health insurance-related claims totaling close to $23 million.
Among the five criteria within the Terrorism Risk Insurance Act (TRIA) is the claims threshold, and the data call confirmed that the attacks did not pierce the $5 million claim threshold. Health claims, which are nearing $23 million in total, are not included in the TRIA threshold, Murphy noted.
He added that there are a number of issues involved in determining whether the bombing tragedy would be considered a terrorist act for insurance purposes such as determining the applicability of terrorism exclusions and terrorism coverage. He said the matter is not clear-cut and it depends on how terrorist acts are defined in various insurance policies.
He cited a 2013 report from Marsh that says the number of businesses purchasing property terrorism coverage has remained constant since 2009 at around the low 60 percent range. Some carriers and policymakers have begun to question whether the reluctance to label the Boston Marathon bombing or other similar events as terrorist acts would lead to a decrease in the purchase of such coverage, as business may see little need for the coverage if they can access it under their property/casualty policy despite the presence of terrorism exclusions.
He also said the Division of Insurance is closely monitoring Congressional activity on the reauthorization of TRIA through the NAIC. TRIA is set to expire at the end of 2014, and the House Financial Services Committee and the Senate Banking Committee have begun to hold hearings.
He noted that insurance regulators have supported TRIA since its inception and its subsequent reauthorizations, and the NAIC adopted a resolution last August reiterating its strong support for continuation of the program.
While the Boston Marathon tragedy is not a significant insurance event, coverages could have been implicated for impacted businesses and policyholders if a terrorist act certification was made. He said the Boston bombing was the first major event since the 9/11 attacks to have started discussions as to whether, for insurance purposes, a terrorist act had taken place on U.S. soil.
The fact that many businesses didn’t have the terrorism coverage in place and would be financially adversely affected by the Boston bombing led to the unusual circumstance where many businesses and public figures took positions that no “terrorist act” took place so as to preclude carriers from triggering the terrorism exclusions contained in most business insurance policies.
He said regulators are continuing to work with the Federal Insurance Office (FIO) and discuss “lessons learned” from the Boston Marathon tragedy that should be considered when reauthorizing TRIA.