Regulatory reform, terrorism insurance and the eventual impact of record-breaking natural disasters were the main topics of discussion at the annual meeting of the Property Casualty Insurers Association of America, held in Chicago last month.
In opening remarks by PCI President and CEO Ernie Csiszar, PCI issued a call to insurers to rethink their approach to regulatory reform and stressed the organization’s commitment to the issue in 2006.
“Because of our inability to make meaningful changes to the regulatory system, perhaps it’s time to reassess our tactics and try an entirely new approach,” Csiszar said. “All of us have been pointing out the flaws in the regulatory system for the past decade. It’s disjointed, inefficient, stifles competition, expensive and antiquated. Most importantly, it is untenable in the long term and must change.”
Csiszar said that 100 years of state regulation has resulted in “a system that requires companies to ask permission to change the price of their product from 51 separate regulators, an ineffective national association of state regulators and a range of state systems that varies from open competition in Illinois to a Communist-style regulatory system in Massachusetts.”
Csiszar pointed out that while the current debate over the Terrorism Risk Insurance Act extension and the federal response to Hurricanes Katrina and Rita may have temporarily moved insurance regulation to Congress’ back burner, they won’t be there for long.
“We must set the table for reform before insurance regulation be-comes the next congressional crisis,” Csiszar said. “We know what happens when Congress tries to resolve a crisis–the pendulum swings too far in one direction and it can often take years before it swings back.”
Csiszar’s concerns were echoed by guest speaker Rep. Michael G. Oxley, chairman of the U.S. House Committee on Financial Services. Oxley also supports passage of the federal SMART Act, which is designed to modernize and establish uniformity in the current state-based insurance regulatory system. He stressed that passage of the SMART Act would not establish an operational federal charter, as some industry critics contend.
“SMART is not the end of state-based insurance regulation,” Oxley said, countering the “scare tactics” of the bill’s opponents, such as the National Association of Insurance Commissioners. SMART has undergone more than 17 committee hearings since its introduction in 2001. And although the NAIC was initially involved in the draft, the group is now openly critical but offers no alternatives, Oxley added.
SMART is a viable alternative to federal oversight of insurance, because many state insurance regulators have been slow in adopting uniform reforms, Oxley said. Although he supports state regulation of the industry, “the status quo is not acceptable,” he added.
Oxley pointed to insurance regulation in Illinois, South Carolina and Ohio as examples of how an open insurance rating system can benefit both the industry and consumers. “Insurance is the only financial services sector subject to state price controls,” he said.
The SMART bill is currently undergoing title revisions and will be introduced after this is completed, Oxley said.
Oxley also noted that although Con-gressional attention has been diverted by fallout from the Gulf Coast hurricane season, key members of the House are “totally committed” to the reauthorization of TRIA and will probably move on reauthorization before the end of the year. The chairman underlined the importance of TRIA to the insurance industry and the U.S. economy in general, calling it a “travesty of enormous proportions to our economy” if not extended.
The current indictment of House Majority Leader Tom DeLay is not expected to affect TRIA’s progress, Oxley said. Calling the move “politically motivated,” Oxley predicted DeLay would be exonerated and the investigation “won’t impact the short-term (Congressional) agenda for this year.”
Although TRIA in its current form needs fine-tuning, passage of reauthorization legislation is essential, he noted.
Joking that “Sarbanes is not my first name,” Oxley also commented on the Sarbanes-Oxley (SOX) reform act that passed Congress three years ago in the wake of high-profile accounting scandals such as Enron and WorldCom. He emphasized that the law was designed to address publicly traded companies, not private, mutual or nonprofit organizations, and that the NAIC’s ongoing efforts to extend SOX’s requirements to those entities would have little benefit for consumers.
Was this article valuable?
Here are more articles you may enjoy.