Recess is Over!

Handycapping Federal Legislative Issues

By Nancy Grover

It has been said that “No man’s life, liberty or property is safe while the legislature is in session.” This statement has been credited to several different sources, including Mark Twain, Will Rogers, and Judge Gideon Tucker. No matter who said it first, surely it was something that all of us in the insurance industry have been feeling this year.

With Congress on its annual summer recess during the month of August, NAMIC’s Washington office took a much-needed breath, albeit a short one. Advocacy at the federal level has reached an all-time high, and our efforts quickly returned to high gear right after Labor Day when the Congress came back to town. Hold onto your liberty and property, it could be a busy fall. Here is how several of NAMIC’s top issues stack up.

The McCarran-Ferguson Act

Despite threats by powerful industry critics to repeal or alter the antitrust exemption provided to insurers under this act, no congressional panel has passed any such legislation. Legislation pending in both the House and Senate would repeal the antitrust exemption under McCarran-Ferguson, in what one expert called “the worst of all worlds.”

As an alternative to repeal, some lawmakers are proposing a series of safe harbors designed to protect specific industry practices, such as data sharing. However, this would cause many of the same problems as repeal. “It would result in years of litigation,” said Carl Parks, NAMIC’s senior vice president for government affairs. “It couldn’t address all the changing needs of our industry.”

Some proponents of an optional federal charter are using the McCarran-Ferguson debate as a means to advance their position. However, “for the most part, people recognize that this legislation would be disastrous, and it shouldn’t be used as a vehicle for OFC,” Parks said.

Still another threat is that the proposal to repeal McCarran-Ferguson will be tacked on to seemingly unrelated, though important, legislation such as extending the terrorism insurance backstop legislation.

Earlier in the year, NAMIC led a coalition of 10 industry organizations in developing a letter delivered to members of the House and Senate that warned of serious repercussions for consumers, as well as the insurance marketplace, if the McCarran-Ferguson Act is repealed.

While we have explained the importance of this anti-trust exemption to many Washington lawmakers and the issue appears to have subsided for the time being, it has not gone away. “Several powerful lawmakers are still interested in moving forward with this repeal effort, so we’re not out of the woods yet,” said Parks. “Those who strive to ‘bring down the insurance industry’ may be somewhat less vocal about their intentions, but they’ve not gone away. We must continue to be vigilant to protect our industry.”

Terrorism insurance

The outlook for an extension of the public/private partnership to provide a terrorism insurance backstop is positive, for the most part. However, a measure introduced in the House would require insurance companies that offer terrorism coverage to also make available coverage for events from nuclear, biological, chemical, and radiological agents.

Experts agree that NBCR coverage is essentially uninsurable, especially by smaller insurance companies. Forcing them to offer the coverage and foot the bill for 15 percent as the legislation initially would force many smaller insurers out of business.

The measure that was ultimately passed by the House Financial Services Committee was considerably more agreeable to smaller insurers. Among other things, it lowered the event trigger level for federal involvement from $100 million to $50 million, extended the life of the program to 15 years, and – perhaps most importantly – included an amendment that could allow smaller insurers to opt out of the NBCR make available requirement, if they could prove that offering such coverage would push them into insolvency. The legislation next goes to the full House. Also on the horizon is terrorism legislation expected to be introduced by the Senate.

“The bottom line is that through our efforts, we have dramatically improved the current legislation,” said Jimi Grande, NAMIC’s vice president for federal and political affairs. “We have achieved our two biggest priorities of a longer-term solution and a lower event trigger. The mandatory make available provision is a real problem for smaller insurers, and we hope to get this provision removed outright before this legislation becomes final.”

Flood and coastal insurance issues

The fallout from the 2005 hurricane season has extended beyond the victims of the tragedy, with the insurance industry facing a barrage of criticism. Two federal lawmakers from Mississippi, Democrat Rep. Gene Taylor and Republican Sen. Trent Lott, have waged a vicious attack, with Lott telling NAMIC’s President/CEO Chuck Chamness that he would “bring down the insurance industry.”

The criticism has led not only to intensified threats to repeal the McCarran-Ferguson antitrust exemption, but to a proposal to include wind coverage in the National Flood Insurance Program, not to mention several other equally bad pieces of legislation.

The NFIP is in debt by nearly $20 billion as a direct result of the 2005 hurricane season. Added to the problem is the nearly $800 million in interest payments the program must fund each year.

NAMIC has taken a lead role in many of the developments on efforts to improve the NFIP and address concerns about insurance availability and affordability in areas vulnerable to, and impacted by, natural disasters.

In April, NAMIC testified before a congressional committee examining coastal insurance issues. “It is widely acknowledged that property insurance has become more expensive and somewhat less available in coastal regions of the U.S.,” Chamness told members of the Senate Banking Committee. “While government and the private sector can and should work together to address this problem, we should not delude ourselves into thinking that economic principles affecting the relationship between supply, demand, and price can be erased by government regulation and programs.”

As we explained, the factors responsible for the problem are:

The exposure of densely concentrated, high-value property to elevated levels of catastrophe risk in certain coastal regions means property insurance there will be relatively expensive compared to regions that lack one or both of these attributes.
As the population growth in these regions increases, the number of people and businesses faced with relatively high insurance costs will also increase.
U.S. coastal regions have experienced increased population growth and commercial development at a time when the frequency and severity of catastrophic storms in these regions are increasing.

In the days leading up to the August recess, NAMIC staff worked closely with the committee to draft legislation that would create a natural disaster commission to examine these issues. The Commission on Natural Catastrophe Risk Management and Insurance Act of 2007 would establish a panel of experts to develop practical solutions to the issues confronting homeowners in areas vulnerable to natural disasters.

Committee Chairman Christopher Dodd, D-Conn., included in the legislation two key issues for the commission to examine: the impact of stronger building codes, and the effect that rate regulation has on catastrophe insurance. The legislation will next go before the full Senate.

“Many of the problems faced by residents of the Gulf region following the 2005 hurricane season might have been prevented if strategies had been in place beforehand,” said Justin Roth, NAMIC’s senior federal affairs director. “It is our sincere hope that Congress will adopt this legislation and allow a panel of experts to develop practical solutions to the issues confronting homeowners in areas vulnerable to natural disasters.”

At the same time, the House Financial Services Committee passed a flood reform measure. H.R. 3121 includes many positive elements, although it also includes a provision troubling to the property/casualty industry.

On the plus side, H.R. 3121, the Flood Insurance Reform and Modernization Act of 2007, would:

Increase the NFIP’s borrowing authority to enable it to pay claims from the 2005 hurricane season
Provide funding for mitigation programs
Require and fund updates to the nation’s flood maps to more accurately identify areas vulnerable to flooding
Create incentives to encourage more homeowners in designated flood zones to secure flood insurance coverage

However, the legislation also would add wind coverage to the NFIP, something NAMIC strongly opposes. “Adding windstorm coverage to the debt-ridden NFIP will only add to taxpayers’ liability,” said Roth.

Roth said the private market is more appropriate for wind coverage. NAMIC will continue to lobby for a stronger NFIP without the inclusion of wind coverage.

Posted: Tuesday, October 16, 2007 12:00:00 AM. Modified: Tuesday, October 16, 2007 4:01:58 PM.

Salary Survey: Data by Size, Region, and More

(317) 875-5250 - Indianapolis | (202) 628-1558 - Washington, D.C.

Contact NAMIC | Press | Advertise | Sponsor

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.