Class Action Reform, AfterMarket Crash Parts Top AIA Priorities at Upcoming NCOIL Meeting

February 26, 2002

The American Insurance Association (AIA) will urge state insurance legislators to encourage states to allow options for insurers that use aftermarket crash parts and to make strides toward civil justice reform during this weekend’s National Conference of Insurance Legislators (NCOIL) meeting. AIA will also participate in a credit-based insurance scoring hearing and propose amendments to surplus lines licensing bonds. In addition, Peter Lefkin, senior vice president of government affairs for Fireman’s Fund and chair of AIA’s government affairs committee, will discuss the need for a federal backstop for future terrorism-related losses.

The NCOIL Property-Casualty Insurance Committee will hold a hearing to consider input on the Certified Aftermarket Crash Parts Model Act, proposed legislation that was adopted by the committee last February. The act would provide that all certified aftermarket crash parts used to repair a motor vehicle are suitable replacement parts; require a body shop or insurance estimate to indicate the use of certified aftermarket crash parts and to identify the parts’ manufacturers (if possible); and apply to leased or financed cars.

“We believe competition within the certification or quality assurance process is beneficial to the consumer. Our objection to the Act is that it would make certification mandatory, leaving insurers and consumers with no alternatives. Since this Act applies mostly to cosmetic – not safety – aftermarket parts, insurers and consumers should have the choice to either use the certified aftermarket parts or have a quality guarantee that is acceptable to the appropriate insurance regulator,” Mark Skinner, AIA vice president, state affairs, said.

The State-Federal Relations Committee will consider proposed class action reform model legislation intended to correct abuses in the prosecution of class actions and would apply to all regulated entities, not just insurers.

“We advocate civil justice reform that limits state class action to citizens of that state only. Unless this is certain, a lower court could determine the rights and responsibilities of citizens in any other state, even though the laws in another state could be quite different,” Skinner said.

The State-Federal Relations Committee will also consider proposed amendments to the NCOIL Resolution in Support of Repealing Surplus Lines Licensing Bonds. AIA’s amendment would encourage states to require surplus lines licensing bonds for states’ resident companies. The NCOIL resolution, as originally adopted, endorsed the repeal of all state surplus lines licensing bond requirements. The bonds are required by law in many states as a condition of doing business and ensure that an obligation owed by one party to another is guaranteed by a third party, the surety.

“The bond requirement benefits consumers and taxpayers. Brokers must prequalify for a bond. And it’s no coincidence that in states where the bond requirement exists that there are few claims against them. We hope NCOIL supports our amendment and ultimately encourages states to continue protecting consumers and taxpayers through retention of its resident surplus lines broker bond requirements.”

A hearing on the use of credit-based insurance scoring in underwriting and rating will take place Saturday. “The use of credit-based insurance scores is an actuarially sound practice that carries benefits and responsibilities for insurers and consumers alike,” Skinner said. “Credit history is a source of affordable, objective information readily available in the market that supplements the underwriting and rating picture so more accurate and consistent decisions are made. With the use of credit-based insurance scores, subjectivity is minimized, allowing for impartial underwriting and pricing decisions. In addition, the use of credit scores has helped make personal lines markets larger and more competitive and has given consumers more choices.”

Peter Lefkin, senior vice president of government affairs of Fireman’s Fund and chair of AIA’s government affairs committee, will discuss during Saturday’s general session the need for a federal backstop for future terrorism-related losses. Congress adjourned in December 2001 without having created a much-needed federal backstop for terrorism insurance coverage.

This inaction has had serious repercussions up and down the commercial insurance chain, and is a serious drag on the recovering U.S. economy.

Only Congress can cure this growing malady for American business by quickly implementing a workable backstop mechanism.

“We’re looking forward to discussing these and other issues with the legislators during the meeting and hope for resolution on many fronts, so that we can continue to forge ahead throughout the year.” Skinner concluded.

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