Regulatory modernization tops industry’s legislative agenda for 2006

By | January 23, 2006

With the extension of the Terrorism Risk Insurance Act, passage of federal class action and crop insurance reform, enactment of asbestos reform in several states and some changes in state laws on pricing, property/casualty industry trade groups made political progress in 2005 on their key concerns. Insurers and agents groups all hope to build on that success in 2006.

In the coming year, federal and state lawmakers are expected to address asbestos liability, regulatory modernization and catastrophe insurance, along with credit-based insurance scoring, tougher building codes and security breach legislation.

Regulatory modernization
Regulatory modernization is perhaps the hottest topic among industry lobbyists for 2006 at both the federal and state levels. Some larger insurers and the life insurance industry continue to advocate for a stronger federal role in regulation while insurance agents and other insurers push for action designed to bring more uniformity to states instead.

Agents’ preferred vehicle for regulatory reform is the State Modernization and Regulatory Transparency Act (SMART), which would reform the current state-based regulatory system without creating a federal regulator or “optional” federal charter.

The American Insurance Association is the lone property/casualty industry group supporter of an optional federal charter. AIA argues this would create a model similar to the dual-charter approach used by the U.S. banking system.

Whatever federal lawmakers do on regulatory modernization, a number of states will also take up the issue. Independent Insurance Agents and Brokers of America and AIA along with the Property Casualty Insurers of America and the National Association of Mutual Insurance Companies will try to keep the pressure on individual states to modernize their regulatory systems before the federal government decides to take more aggressive action.

Bills to introduce more pricing freedom have been introduced in Connecticut, Hawaii, Indiana, Iowa, Massachusetts and New York, according to NAMIC.

Asbestos litigation
Compensation for victims of asbestos exposure may be the first federal insurance issue to be decided during 2006. The industry is split over a proposal sponsored by Sen. Alan Spector (R-Pa.) that would establish a $140 billion federal trust fund financed by businesses and insurers to compensate individuals with asbestos-related diseases.

Congress and states may also consider a different approach, based “medical criteria,” that promises to reduce the number of asbestos lawsuits filed by individuals without any symptoms of illness. Rep. Chris Cannon (R-Utah) has filed a medical criteria measure. If a federal solution remains elusive, the industry will be looking to the states for answers.

Catastrophe debate
As the recovery from Katrina and other storms of 2005 continues and forecasts point to more hurricanes in the years ahead, the roles of government and private insurers in covering natural catastrophes will be debated in Washington and in states.

The IIABA said it will continue to support federal legislation that leads to greater availability of coverage for catastrophe risk and better markets for consumers as well as improvement to the federal flood insurance program.

Industry groups hope to convince policymakers to establish proper incentives for private-market insurance participation in catastrophe-prone areas in 2006 as opposed to complicated systems of state and federal catastrophe reinsurance funds for natural catastrophe risks.

The industry would also like to see states adopt modern building codes to mitigate property losses.

Security breach
Last year, 21 states enacted security breach notification laws, according to NAMIC. “We anticipate more states looking at this issue this year since members of Congress have so far failed to enact a law creating uniform national standards,” said NAMIC Senior State Advocacy Director Neil Alldredge. “The more states that enact such legislation, the more they are likely to enact provisions different from each other.”

As many as 40 states may introduce insurance scoring bills this year. While a few states may continue efforts to prohibit insurance scoring outright, most bills are likely to seek restrictions where individuals may be involved in “extraordinary life circumstances.”

The industry is likely to face regulatory challenges to the use of geography as an auto insurance rating factor in California, reform of the workers’ comp system in South Carolina and improvements to the expanding no-fault auto insurance system in Florida, among others. The industry will also be watching the courts, particularly cases involving “wind vs. water” claims in Louisiana and Mississippi that could affect the flood loss exclusion language.

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Insurance Journal West January 23, 2006
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