“Ethics in the Wholesale Insurance Marketplace” workshops concluded on Saturday afternoon with a round-table discussion, led by Ernest Csiszar, president of the Property and Casualty Insurance Association of America, about increasing pressures on the insurance industry during the past year due to unprecedented natural disasters, proposed national legislation and efforts to increase government regulation.
Other panel members participating on the panel included Tom Gallagher, chief financial officer of the State of Florida; and Gordon Breslin, of ACE (UK). The event was part of AAMGA University sessions. Other topics included proposed national legislation and efforts to increase government regulation.
Other major issues facing the industry are the Terrorism Risk Insurance Act (TRIA), the State Modernization & Rate Transparency (SMART) Act, and asbestos and anti-trust issues, all of which are in a “state of flux,’ Csiszar said.
“With these issues, there is no end of job security in the industry,” Csiszar said. “TRIA, I believe, will be extended if we, as an industry, come up with part of the solution.”
Because the losses from a successful terrorist attack, such as a “dirty bomb,” could reach $150 billion, the insurance industry must be proactive, he said.
“We only have one backstop to that kind of exposure, and that is the federal government,” Csiszar said, adding that being open-minded about tax referrals is just one way the industry can work with government to deal with the problem.
“It is clear there are private tools that can come into the mix,” he said.
Gallagher lamented Florida’s ongoing presence in the news, from the Terri Schiavo case and kidnappings to incredible growth and the disaster of four hurricanes hitting the state. Chief among those issues was the terrible hurricane season, when four storms caused billions of dollars in damage.
“The storms were anything but concentrated,” Gallagher said. “One in five homes have been damaged. Seven months after the hurricanes, blue tarps are still seen on roofs across the state.”
To deal with such massive damage, Florida had previously created the Citizens Property Insurance Corporation as an insurer of last resort for state residents. Citizens has 800,000 to 900,000 policies and suffers from a lack of adjusters to deal with the number of claims following the historic hurricane season, he said.
The bottom line is that Citizens faces $2.3 billion in claims and has only $1.8 billion in cash, which means the state will probably have to increase taxes to cover the difference.
Another insurance issue for the state is workers’ compensation insurance, especially because the state’s rapid growth created a situation where the construction industry expanded quickly to meet the new demands. Many companies had operated without workman’s compensation, but the state passed legislation requiring workman’s comp. A violation of the law is now a felony punishable by fines of $1,000 a day.
“We’re talking about tremendous costs, and it is working,” Gallagher said.
Across the Atlantic Ocean, Great Britain watched the result of the “Spitzer tornado,” and studied its own regulations, Breslin said. Britain dealt with its own ethics issues in the 1990s, which led to the creation of the Financial Services Authority (FSA), an independent non-governmental body that was given statutory powers by the Financial Services and Markets Act of 2000.
The FSA has made it clear that financial representatives “must not receive any inducements,” Breslin said.
Following their recaps of the last year, panel members answered questions from the audience, and the strongest words came from Csiszer, who said that Spitzer’s investigation “did find practices in the industry that are deplorable.”
“But Spitzer takes things further than that. As a prosecutor he is overreaching. What we’re seeing is trail by media,” Csiszar said, adding “I am very troubled by this. It smacks of McCarthyism, and that is not what America is about.”
Topics Florida Catastrophe Legislation Excess Surplus Hurricane Market A.J. Gallagher
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