Banging the Drum

NAMIC Rallies Support as Key Battles Loom

Nancy Grover | Media Relations Director

The National Association of Mutual Insurance Companies is pulling out all the stops to face the latest national and state challenges in the 2007 legislative year. While there are a variety of issues to be tackled, front and center this year is the threat to one of the most basic needs of our membership: the antitrust exemption provided under the McCarran-Ferguson Act.

The exemption promotes industry competition by allowing companies to exchange critical data on losses and other factors; allows development of standardized policy language; facilitates participation and oversight of state guaranty funds; permits state control over liquidations; and enables the development and operation of assigned risk plans.

Any change that precludes, restricts, or even merely discourages the production and exchange of advisory loss costs and supplementary rating information could place smaller and regional firms at a distinct disadvantage, increase consumer costs, reduce consumer choice, and seriously undermine competition.

While there have been proposals to change or repeal the Act in previous years, none has gained as much momentum as we’re seeing in the current legislative season. NAMIC’s government affairs staff and members have adopted an “all-hands-on-deck” attitude for this fight.

Following the Federal Affairs Committee’s decision to name it the most important legislative issue of the year, the federal affairs staff set up a McCarran-Ferguson war room in its Washington, D.C., office. NAMIC’s state affairs managers are, likewise, steering their conversations with state legislators, members of state trade associations, and NAMIC members to this issue. NAMIC members who participate in our Congressional Contact Program are becoming well versed on the subject, as they meet with Congressional representatives and senators from their states.

In addition to McCarran-Ferguson, several other issues are demanding the attention of NAMIC’s federal affairs staff. At its recent annual meeting, the Federal Affairs Committee named the following five additional issues as those to be given priority:

The impending expiration of the Terrorism Risk Insurance Act
Flood-related issues
Underwriting restrictions
Small-company taxation
Insurance regulatory reform

TRIA

With the Terrorism Risk Insurance Act scheduled to sunset on Dec. 31, 2007, NAMIC is working diligently with the industry and lawmakers to establish a long-term limited public/private partnership that will ensure continued availability and affordability of insurance for terrorism coverage. NAMIC is also working to ensure that a permanent event trigger is set at a level that will continue to encourage participation by small- and medium-sized insurers. Too high a trigger would drive them from the market because reinsurance costs would be too high, making primary coverage unaffordable. After all, small- and medium-sized insurance carriers form the backbone of the industry and support niches of terrorism coverage larger carriers have historically avoided.

Flood-related issues

Flood claims arising from the 2005 hurricane season exceeded $25 billion. In order to pay all of these claims, Congress must pass legislation that allows the National Flood Insurance Program to borrow money from the Treasury.

While NAMIC agrees that there needs to be additional reform to the NFIP, we do not believe that these reforms should stand in the way of Congress passing the additional borrowing authority that the NFIP has requested to take care of those homeowners who did the right thing by purchasing flood insurance, and we must do so immediately.

Underwriting restrictions

The right of insurers to use credit-based insurance scores for underwriting purposes should not be curtailed as some have advocated. Credit-based insurance scores provide an objective and consistent tool that insurers use to help them better predict the likelihood of future claims and the cost of those claims. NAMIC opposes restrictions to the use of these scores in making underwriting and rating decisions.

Small-company taxation

NAMIC strongly supports the expansion of Internal Revenue Code Section 831(b)(2) to increase the small property/casualty insurance company investment income election to reflect the inflationary impact since its enactment in 1986. Many small companies are approaching the current $1.2 million limit on direct or net written annual premiums to elect to be taxed on their net investment income; and both they and their customers will be adversely impacted if it is not raised. With the increased election level tied to an annual adjustment in the cost of living, these insurance companies can continue to keep premiums low in rural areas where larger insurers either do not write coverage or charge higher premiums than consumers can afford.

Insurance regulatory reform

While the state-based system of insurance regulation is not perfect, improvements have been made in addressing price controls, company licensing, and other areas of concern. NAMIC supports continuing reform of the existing system through legislation in the state capitols, rather than moving toward federal regulation of insurance or an optional federal charter. NAMIC neither supports nor opposes a comprehensive federal tools approach. Rather, we will evaluate each federal tools bill as it is drafted.

Congressional Contact Program

Once again, NAMIC members have a unique opportunity to have their voices heard on Capitol Hill. Each year, participants in NAMIC’s CCP are welcomed to D.C. by members of our federal affairs staff, who take them to the halls of Congress for one-on-one meetings with their representatives, senators, and/or their staffs. It’s an invaluable way to get your message to key lawmakers.

This premier grassroots program kicked off its 22nd year as NAMIC members of the newly created CCP Task Force met in Washington, D.C. to plot strategy. CNBC was there to record the opening event and interview Senior Vice President of Government Affairs Carl Parks for a piece it aired on McCarran-Ferguson. During the 2006 CCP season, more than 290 participants held meetings in more than 350 House and Senate offices. With so many new members of Congress this year, your participation is needed now, more than ever.

Public Policy

After hearing a speech from Dr. Scott E. Harrington of the Wharton School, University of Pennsylvania, NAMIC members attending the association’s annual Public Policy Summit in New Orleans voted to address the McCarran-Ferguson issue in our annual Issue Analysis.

Harrington, the Allan B. Miller professor of Health Care Systems and Insurance and Risk Management, has done extensive research on the issue. His 2006 paper, Federal Chartering of Insurance Companies: Options and Alternatives for Transforming Insurance Regulation, deftly illustrates there is absolutely no need — and no gains to be made — by repealing McCarran-Ferguson.

Inevitably, McCarran-Ferguson and the other challenges mentioned will not be the only ones we face this year. But with your help, NAMIC will continue to persevere and overcome them.

Posted: Thursday, May 31, 2007 12:00:00 AM. Modified: Thursday, June 28, 2007 3:48:40 PM.

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We are 1,400 property/casualty insurance companies serving more than 135 million auto, home and business policyholders, with more than $196 billion in premiums accounting for 50 percent of the automobile/homeowners market and 31 percent of the business insurance market. We are the largest and most diverse property/casualty trade association in the country, with regional and local mutual insurance companies on main streets across America joining many of the country’s largest national insurers who also call NAMIC their home. More than 200,000 people are employed by NAMIC members.