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Capitol ideas

Capitol ideas

A roundup of insurance-related legislative and regulatory developments shows that Congress is taking the industry's needs seriously.

During the past year, Congress has adopted major pension reform legislation and is considering proposals to restructure the insurance industry's state-based system of regulation. It is also joining states in considering ways to help the nation better respond to, and prepare for, natural and man-made catastrophes.

For agents and brokers, though, such policymaker deliberations are still overshadowed by the legal settlements stemming from New York Attorney General Eliot Spitzer's investigation into improprieties involving brokers' and insurers' conduct


"The pressure of gun-at-the-head deals between insurers and Attorney General Spitzer continues," Joel Wood, senior vp of government affairs for the Washington-based Council of Insurance Agents and Brokers, said in an e-mail. "It is potentially changing the compensation model with no input from regulators or legislators," he wrote.

Overall, though, "I think Congress' will to tackle insurance issues is growing," said Ben McKay, senior vp-federal government relations in the Washington office of the Property Casualty Insurers Assn. of America. That's a byproduct of the national impact of the storm-driven Gulf Coast devastation and terrorist attacks, he said.


"There is definitely a momentum building for Congressional examination of reforming state insurance regulation," said a spokesman for the Washington-based American Insurance Assn., which represents property/casualty insurers. "No one in Congress is disputing that the state regulatory system is broken. The debate is over how to fix it," the AIA spokesman said.

The introduction of Senate legislation that would provide insurers the option of being nationally regulated while preserving some of the state-based regulatory system is a key federal issue for some insurers.

"We want the opportunity of going to one federal regulator," which would increase uniformity, said Kimberly Olson Dorgan, executive vp-federal relations for the Washington-based American Council of Life Insurers.

Supporters also are encouraged that the Senate Committee on Banking, Housing and Urban Affairs has already held hearings on the proposal, which helped educate members about the issue. Also, a similar bill is expected to be introduced in the House of Representatives, sources say.

Outspoken opponents of the plan, however, include the Indianapolis-based National Assn. of Mutual Insurance Cos. and the Alexandria, Va.-based Independent Insurance Agents & Brokers of America Inc.

"Politically, the industry is divided. The life side appears to favor optional federal charter because they sell products--like retirement-related ones--that compete with bank and securities products. Whereas, the property/casualty side is much more locally based and not subject to competition from banks and securities firms," according to a NAMIC statement.

There is broader support among industry groups, though, for the House's decision to take an incremental approach to implementing the regulatory modernization strategies that it outlined last year in the State Modernization and Regulatory Transparency Act. For example, the Nonadmitted and Reinsurance Reform Act--a separate but related measure--would establish a uniform system for regulating and taxing the surplus lines industry by making nonadmitted insurance subject to regulation only in a policyholder's home state.

On the state level, more than half the members of the National Assn. of Insurance Commissioners have signed on to implementing an interstate compact that would speed the approval of new life and health-related products by giving insurers a centralized place for filing and review.

"It reduces the number of portals you have to go through to get your products to market," said Bruce Ferguson, the ACLI's senior vp-state relations.

Another state-related issue for life insurers includes encouraging annuity suitability and disclosure information for all consumers, not just senior citizens, he said.

For property/casualty insurers, regulatory modernization also occurred in Connecticut and Florida, which each adopted flex ratings for personal lines risks to replace pre-approved rates, said John Lobert, senior vp-state government relations for the Des Plaines, Ill.-based PCI. A flex rating system allows rate levels to change within a defined range.


One year after the 2005 Gulf Coast hurricanes, Congress is grappling with measures to meet the National Flood Insurance Program's financial obligations and update its operations. The more than 3 million claims include $57 billion in hurricane-related losses, but exclude $15.3 billion in flood damage insured by the NFIP as well as $2 billion to $3 billion in insured damage to offshore energy facilities, according to the New York-based Insurance Information Institute.

In addition, Congress also is discussing proposals to help the United States better prepare for future disasters, ideas that include establishing a commission to evaluate options and allowing insurers and homeowners to establish tax-favored reserves to pay future losses.

In the Gulf Coast states, policyholders' disappointment over the lack of storm surge coverage in a typical homeowners' policy translated to the introduction of several "insurer bashing" bills and lawsuits seeking to require insurers to pay claims regardless of policy language, Mr. Lobert said. Thus far, those efforts at legislation and litigation have been unsuccessful, he added.

Meanwhile, Mississippi adopted tougher building codes while Louisiana implemented what had previously been adopted, he said.

The Florida Building Commission, however, last month decided on a lesser standard for storm shutters or impact-resistant glass for homes in the state's Panhandle region, prompting widespread criticism. In addition, Florida recently launched a joint underwriting authority to help businesses find property insurance.


Life insurers are excited about the most significant changes in pension rules in three decades, Ms. Dorgan said. The U.S. Pension Protection Act, which was signed into law last month, will expand markets for life insurers that sell annuities and long-term care insurance as well as those that manage 401(k) programs, she said. For example, the law allows participants to turn their 401(k) assets into a lifetime income stream.

A unique provision of the bill essentially combines annuity products and long-term care insurance by allowing purchasers to access proceeds on a tax-free basis if the money is used to pay for long-term care, Ms. Dorgan said.


With more than 40 million Americans uninsured, "access issues continue to percolate," said Mohit Ghose, a spokesman for the Washington-based America's Health Insurance Plans, a trade association with nearly 1,300 members that provide health care coverage.

Improving seniors' access to prescription drugs was the goal of the Medicare Part D plan for prescription drugs, which went into effect this year with confusion among consumers, according to numerous published reports. Financially, though, the program is already considered successful due to competition reducing drug costs, Mr. Ghose said.

This year, the most controversial access-related activity in the states stemmed from so-called "fair share" movement that tried to require that large employers provide employees with some health benefits.

For example, Maryland adopted a law that would have required employers with 10,000 or more employers in the state to spend at least 8% of payroll on health benefits. That law was invalidated by a federal judge's decision that it violates a provision of the federal Employee Retirement Income Security Act, which pre-empts state laws and rules that relate to employee benefits. The state has since appealed.

While Massachusetts and Vermont adopted laws to promote health care access for workers, New Jersey is relying on the prospect of negative publicity to motivate employers. Its recent law creates a state list of employers with 50 or more employees or employee dependants enrolled in state-supported health care programs for the poor.

Other efforts seeking to increase access for insureds, such as bans on discretionary clauses that allow health plans to interpret policy language, are an issue in California, Michigan, New Jersey and New York, Mr. Ghose said.

Other health-related action on the federal level includes "major movement on health information technology," Mr. Ghose said. While Congress is considering competing IT bills, the U.S. Department of Health and Human Services recently approved some important final regulations that will create a uniform template to support electronic records and prescriptions.

Other trends in states' health-related legislation include the establishment of commissions to review new mandated benefit proposals and efforts to encourage citizens to purchase long-term care insurance, Mr. Ghose said.


While Congress failed to act on asbestos reform, a few states have taken steps to impose minimum medical criteria so that loss payouts go to people who are sick and injured from asbestos or silica exposure, rather than to those who were exposed but are not impaired, Mr. Lobert said.

Such bills were passed in Kansas and South Carolina, while Tennessee approved a silica-only law, he said.


The most significant auto-related development at the state level was legislative repeal of authorization for Florida's no-fault system. Insurers supported that because costs there were out of control due to fraud, Mr. Lobert said.

In addition, proponents of auto insurance reform in Massachusetts laid the foundation for future reform of its troubled auto insurance system, he said. The Massachusetts Supreme Judicial Court recently upheld the insurance commissioner's authority to overhaul the state's auto residual market plan and make it more competitive, according to a statement by Frank O'Brien, New England regional manager for PCI.


In highly publicized settlements, several major brokers and insurers agreed to pay hundreds of millions of dollars in settlements to authorities including Attorney General Spitzer and other states' regulatory and law enforcement officials for alleged improper conduct.

Some of those national settlements with insurers have had a troubling impact on members of the independent agents group and others, said Wes Bissett, the IIABA's senior vp-government affairs and state relations.

In settlements involving New York, Connecticut and Illinois, a provision prohibits several insurers from paying contingent commissions to any agents if 65% of the market for that line of insurance does not pay such commissions, he said. In addition, a separate multistate settlement with Zurich American Insurance Co. requires that all Zurich agents disclose their compensation to customers, he said.

Meanwhile, at least six states--Arkansas, Connecticut, Georgia, Oregon, Rhode Island and Texas--have adopted laws or regulations in the past several months that are similar to a model adopted by the National Conference of Insurance Legislators.

The NCOIL model requires less disclosure than does the National Assn. of Insurance Commissioners' earlier model, because the NCOIL model omits a provision requiring a producer to disclose its ties to an insurer even when the producer receives no compensation from the policyholder.

In addition, Nevada has issued a regulation based on the NAIC model that requires producers to disclose their compensation.

In a recent development, some settlement agreements are being revised. For example, Marsh Inc. now is allowed to accept contingent commissions on business where it acts as a managing general agent or underwriting manager, according to an agreement reached late last month with Mr. Spitzer and New York Insurance Superintendent Howard D. Mills III. Other brokers are expected to seek similar revised agreements.