Top Advocacy Issues: Federal

Terrorism Risk Insurance Act

Due to the tragic events of September 11, Congress over-whelmingly passed the Terrorism Risk Insurance Act of 2002 (TRIA). TRIA created a mechanism under which the federal government would provide a federal reinsurance backstop to commercial insurers in the event of another terrorist attack. TRIA is scheduled to sunset on December 31, 2005.

TRIA was intended to allow the market three years to develop adequate terrorism insurance products. However, almost three years after the attacks, predicting how, when and where future terrorist attacks against the United States will be launched remains speculative. Acceptance or rejection of TRIA coverage appears to be based on the insureds’ perception of their terrorism risk. However, another attack in the United States could change perceptions of risk leading to a shortage of coverage based on today’s usage.

The industry has formed a coalition to push for the extension of TRIA for two more years. It argues that it is necessary because insurers are currently writing policies that will be in-force through 2006 and they need TRIA in place to appropriately price those policies. NAMIC is engaged in the TRIA issue in the following ways: 1) The board endorsed federal legislation to extend TRIA for two years beyond its scheduled sunset and authorized funding for a study on the economic effects of federal participation in terrorism risk by Glenn Hubbard, former chairman of the Council of Economic Advisors; 2) NAMIC included the discussion of TRIA in its Congressional Contact Program meetings on Capitol Hill in 2004; 3) Participated in an industry coalition that testified at the U.S. Senate Banking Committee’s oversight hearing on TRIA on May 18, 2004; 4) Joined with the insurance industry in helping to obtain congressional co-sponsors for a letter to Treasury Secretary John Snow in favor of extending TRIA; 5) Issued a press release in favor of legislation, H.R. 4634, to extend TRIA introduced on June 22, 2004 by Reps. Richard Baker, R-La., Sue Kelly, R-N.Y., Eric Cantor, R-Va. and Pete Sessions, R-Texas; 6) Joined in an industry letter dated June 25 to members of the House in favor of extending TRIA; 7) Helped to persuade Treasury to extend the “make available” provision in June, 2004 although by statute it was not required to make its decision until September 1, 2004; 8) Established a TRIA Working Group; 9) Participated on a panel devoted to TRIA at the State Insurance Trade Association meeting in New York City on October 11, 2004 along with N.Y. Superintendent of Insurance, Greg Serio and industry representatives.

According to Dr. Hubbard’s study, “The Economic Effects of Federal Participation in Terrorism Risk,” should TRIA not be extended, insurers would exit geographic areas with large exposures such as New York City and Washington, D.C., as well as significantly increase the prices for terrorism coverage. This would cause policyholders to choose to conduct business without coverage or pay significantly higher prices for coverage. With this domino effect, should another attack occur the size of September 11, tens of thousands more jobs could be lost due to the lack of insurance coverage and thousands of additional bankruptcies could occur.

Congress listened and responded with the introduction of two bills in addition to H.R. 4634 mentioned above: H.R. 4772, the Terrorism Risk Insurance Program Extension Act, introduced by Reps. Michael Capuano, D-Mass. and Steve Israel, D-N.Y.; and S. 2764, the Terrorism Risk Insurance Extension Act, introduced by Senators Chris Dodd, D-Conn., and Bob Bennett, R-Utah.

Treasury is scheduled to report to Congress by June 2005, TRIA hearings will begin in March 2005 in the Senate Banking Committee and the House Financial Services Committee. NAMIC will continue to support legislation to extend TRIA.

Insurance Regulatory Reform

The issue of Insurance Regulatory Reform was among the top legislative issues for NAMIC during the past year. NAMIC supports reforming the state-based system of insurance regulation through legislation in the state capitals. NAMIC opposes federal regulation of insurance or an optional federal charter. The debate over whether to reform insurance regulation became more sharply focused in the 108th Congress when House Financial Services Committee Chairman Mike Oxley, R-Ohio, circulated a discussion draft of his “State Modernization and Regulatory Transparency (SMART) Act” in August, 2004. Prior to that, on March 14, 2004, he outlined to the National Association of Insurance Commissioners (NAIC) his “Roadmap for Regulatory Reform.” On March 31, 2004, then-NAMIC Chairman Tim Hegarty, current NAMIC Chairman Wayne White and NAMIC President Chuck Chamness sent a letter to Chairman Oxley supporting his efforts and reiterated NAMIC’s strong support for state insurance regulation and for reforms to insurance regulation providing an environment of open competition where companies and consumers benefit. Specifically, NAMIC’s letter expressed support for Chairman Oxley’s statements as follows:

The House Financial Services Committee is not considering either an optional federal charter or a federal insurance regulator.
The Committee has rejected the notion of a dual federal-state regulatory system.

NAMIC further indicated to Chairman Oxley that it believes that the concepts and goals outlined in his speech to the NAIC can be accomplished without federal regulation. The NAMIC Regulatory Structure Task Force held its first meeting on March 31 and April 1 at NAMIC’s D.C. office. The Task Force heard from the NAIC President, House Financial Services Committee Counsel and a representative from the Independent Insurance Agents and Brokers of America. The Task Force agreed that rate regulation reform and designing an enforcement mechanism would be the most difficult upon which to reach consensus. After the SMART Act discussion draft was circulated in August 2004, NAMIC sent another letter to Chairman Oxley on September 27 supporting his efforts and again emphasized NAMIC’s strong support of state regulation and longstanding support for insurance reform in the state capitals. NAMIC again praised Chairman Oxley for rejecting an optional federal charter and a federal insurance regulator. NAMIC further praised the proposed elimination of the approval process for pricing insurance products. NAMIC’s letter also pointed out that it took issue with several parts of the proposal, most notably the new elevated authority the proposal would give to the NAIC.

The NAMIC Regulatory Structure Task Force met again by teleconference on November 22, 2004 to discuss the SMART Act discussion draft’s treatment of the open rate competition and enforcement mechanism. On December 2, the second annual NAMIC Public Policy Summit took place in Washington, D.C. and on the basis of the work conducted by the Task Force, recommended that the NAMIC Board adopt a non-opposition position regarding the SMART Act discussion draft. The NAMIC Board of Directors considered this matter at its December 2004 meeting and adopted the position that NAMIC would neither support nor oppose the SMART Act discussion draft with the understanding that the policy would be re-examined when legislation was formally introduced in the 109th Congress.

It is anticipated that hearings will be held in both the House Financial Services and Senate Banking Committees in 2005.

Politically, the insurance industry is divided. The life side appears to favor an optional federal charter, whereas the property/casualty side remains split with some associations advocating an optional federal charter, some advocating federal standards and the rest in favor of insurance regulatory reform at the state level.

The insurance community, companies and agents alike, recognizes the need to modernize the regulation of insurance. In many respects, the industry is collaborating informally and working with the NAIC, NCSL and NCOIL to accomplish the goals of modernization and uniformity. State insurance regulation is well established within state government. The reform process will require some time before the improvements will be enacted and implemented.

Asbestos Liability Reform

Asbestos claims are inundating the U.S. state court system at an alarming rate. To date, the number of asbestos liability claims filed in the U.S. is more than 700,000. Recent statistics show that 100,000 new asbestos claims were filed in 2003, which was more than triple the amount just two years before. With tens of thousands of new claims filed each year, legal experts expect that the total number of lawsuits could eventually exceed 2.5 million. Additionally, some experts predict that asbestos liability could ultimately cost the U.S. economy more than $200 billion.

In 2003, S. 1125, the Fairness in Asbestos Injury Resolution (FAIR) Act was introduced by U.S. Senator Orrin G. Hatch, R-Utah. The FAIR Act would create a privately funded, publicly administered fund to provide resources for an asbestos injury claims resolution program. The Senate Judiciary Committee approved the FAIR Act by a vote of 10-8. Insurance companies and trade associations were unsupportive of S. 1125 because the legislation was inequitable, unaffordable and unworkable.

After months of intensive discussions with the industry and other Senators, Senate Majority Leader Bill Frist, R-Tenn., introduced S. 2290, which represented a significant improvement over S. 1125. However, there remained a number of outstanding issues to be resolved. On April 22, 2004, S. 2290 was rejected when the Senate voted against it by a vote of 50-47.

Negotiations have been ongoing since the Spring of 2004 between insurers, defendant companies, labor unions and the trial bar. All of the stakeholders remain committed to resolving the differences and passing asbestos legislation.

NAMIC, in collaboration with other industry groups, continues to aggressively work with the 109th Congress to help develop and improve federal legislation to resolve the national asbestos litigation crisis. NAMIC has been actively working and meeting with key Congressional Members and their staffs to improve the legislation while ensuring that appropriate compensation is given to the victims of asbestos exposure.

NAMIC believes that Congress must address the current asbestos liability crisis. In order to garner the support of NAMIC, as well as the property/casualty industry, Congress must craft legislation to ensure certainty and finality, affordability, and effectiveness and efficiency. There are people that have been physically injured or have died from exposure to asbestos, and the legal system should fairly and adequately compensate these innocent victims. However, today’s system instead targets and punishes those companies who had only peripheral or no involvement with asbestos-containing materials, and it allows some individuals to sue and obtain compensation when they are not injured. Wrongly punishing innocent companies while awarding damages to unimpaired plaintiffs only serves to prevent the truly injured from obtaining just compensation.

Class Action Reform

Increasingly, plaintiffs’ attorneys “forum-shop” by taking advantage of lax certification standards to bring class action suits in selected state courts. Many of these suits are interstate in nature (i.e. there is a multi-state plaintiff class or a diverse defendant) and belong in federal court. As a result, the proliferation of questionable class certification standards in state courts has created an unfair system that enables plaintiffs’ attorneys to use class action to achieve a desired result because of the settlement pressures facing defendants after a class is certified. The true winners in these cases are the plaintiff’s lawyers who receive large fees, while the class members receive a minimal recovery at best and sometimes no compensation.

The Class Action Fairness Act of 2003 continued to make its way through the 108th Congress. Senator Charles Grassley, R-Iowa and seven other Senators introduced their version of the Class Action Fairness Act, S. 274. In general, the Class Action Fairness Act was designed to amend the procedures involved in interstate class actions to assure fairer outcomes for class members and defendants. Specifically, the Act grants federal district courts original jurisdiction of any civil action where the amount in controversy exceeds $2 million and the members of the class meet set requirements. The Act also allows for the removal of interstate class action lawsuits from state to federal courts. The Class Action Fairness Act also includes a consumer bill of rights that includes provisions for: judicial review of non-cash settlements (i.e. coupons); protection against loss by class members; and clearer settlement information.

Late in the Fall of 2004, the Senate held a vote on S. 274 (which later became S. 1751) but was rejected by one vote short of the needed 60 votes (59-39). With the hard work and efforts of Senate Majority Leader Bill Frist, R-Tenn., along with Senators Christopher Dodd, D-Conn., Tom Carper, D-Del., Charles Schumer, D-N.Y., and Mary Landrieu, D-La., a compromise was struck regarding changes to the bill language.

Under the new class action bill, cases involving at least $5 million and 100 plaintiffs, in which the primary defendants – and fewer than two-thirds of the plaintiffs – are residents of the same state, would be eligible for transfer from state to federal court. The compromise would strike a provision in the current bill that would forbid special payments or consideration – known as bounty payments – for certain members of a class of plaintiffs.

The compromise also included several other concessions. Among them: language that would prevent class actions from being removed from state courts if any defendant – not just a primary defendant – is a resident of the same state as two-thirds of the plaintiffs. They agreed to broaden an exception already in the bill outlining when mass action cases can be transferred. Also included in the compromise would be a provision that would provide a specific time frame for defendants’ appeals of federal court decisions to reject class action transfers.

In June 2003, the House approved its version of the Class Action Reform Act, H.R. 1115, introduced by Reps. Bob Goodlatte, R-Va., Rick Boucher, D-Va. and James Sensenbrenner, R-Wis. H.R. 1115 is nearly identical to S. 274 and passed the House by a vote of 253-170.

On January 25, 2005, Senate Finance Chairman Charles Grassley, R-Iowa, and chief sponsor of last year’s legislation, introduced S. 5, the bipartisan Class Action Fairness Act, along with 33 other co-sponsors. The legislation is identical to the compromise bill (S. 2062) that was debated last year. S. 5 would allow federal courts to hear large national class-action lawsuits involving plaintiffs and defendants from different states.

After six years of legislative efforts, the Senate voted on final passage of S. 5. The vote on final passage was 72-26, with all Republicans present voting in favor of the bill, as well as 18 Democrats and one Independent.

The House voted overwhelmingly in favor of S. 5 on Feb. 17.

President George W. Bush signed the legislation into law on Feb. 18.

Class action reform legislation was one of the top legislative priorities for NAMIC in the 109th Congress. NAMIC, along with the insurance industry, worked very hard with the Congress to enact this vitally important piece of legislation.

Medical Malpractice Liability Reform

The cost of medical malpractice insurance for physicians and others in the healthcare field has more than tripled in the last decade. These increases arise from the growing number of medical malpractice claims, rising defense costs, and a reduced supply of available coverage.

Due to these rising costs, doctors nationwide are being forced to quit their practices or relocate to other states. Additionally, many insurance companies that once provided medical malpractice coverage have been forced to withdraw from the market. Should this trend continue, doctors will be unable to practice and therefore cause difficulties for patients seeking proper medical care.

During the 108th Congress, there were several medical malpractice proposals that were considered, which would have limited the amount of jury awards in malpractice lawsuits against health care providers. However, due to the difficult political climate, and election year politics, it proved to be very challenging to enact any type of meaningful tort reform legislation.

However, medical malpractice reform continues to be one of the major legal reform issues in the 109th Congress. President Bush, along with Senate Majority Leader Frist, has stressed the importance of common-sense reform to protect patients and to make healthcare more affordable and accessible for all Americans.

Posted: Friday, April 01, 2005 12:00:00 AM. Modified: Thursday, April 14, 2005 1:07:51 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.