CEOs find common concern in TRIA

SEATTLE—A group of insurer chief executive officers readily agreed about the need for a federal terrorism insurance backstop and improved privacy controls, but other consensus was harder to come by at the Property Casualty Insurers Assn. of America conference.

For example, four CEOs participating in a panel discussion on political issues with bottom-line impact differed on the need for terrorism coverage to include liability protection and the significance of an optional federal charter proposal at the Seattle conference held late last year.

The participants were Janice Abraham, president of United Educators Insurance, a Chevy Chase, Md.-based risk retention group that insures schools nationwide; Andrew Frazier, president of Western World Insurance Group in Franklin Lakes, N.J., a national surplus lines insurer; Robert Restrepo Jr., president and chairman of State Auto Insurance Cos. in Columbus, Ohio, an insurer of Midwestern personal and commercial property; and Paula Rosput Reynolds, president of Seattle-based Safeco Corp., a large multiline property/casualty insurer.

Regis Coccia, editor of Business Insurance, moderated the panel.

high priority

Establishing a stable terrorism insurance program is a high priority for some small insurers and policyholders, but not for all insurers, the executives said.

Ms. Abraham was the most enthusiastic supporter of continuing the federal terrorism insurance backstop for property and liability risks. She advocates an immediate extension of the Terrorism Risk Insurance Extension Act, which is due to expire Dec. 31.

"It's critical that this proceeds and that we have a long-term solution," Ms. Abraham said.

Without it, campus life, which should be open to controversies, would be negatively impacted, Ms. Abraham said. For example, researchers might avoid seeking grants for controversial projects that might attract terrorists, schools might avoid hosting presidential debates and football fans entering a stadium might face heightened screening more akin to airline passengers, Ms. Abraham said.

Mr. Restrepo said he has two points of view on continuing TRIA. On one hand, he said he doesn't lose sleep over the possibility that TRIA will not be renewed since it primarily affects major metropolitan areas such as New York and Washington. On the other hand, he said he is concerned about terrorism-related exposures his clients and agents face. Weighing both sides, he concluded that "it's a matter of public policy and we need a long-term solution."

The current "watered down" version of TRIA is not worth it, said Western World's Mr. Frazier. Mandates generally "give us heartburn," he said. Also, the loss levels at which insurers could obtain relief are high and the coverage applies to risks, such as tanning salons, that have little or no exposure to terrorism, he said.

Safeco's Ms. Reynolds said the insurance industry may have to look to itself for a solution to the problem of terrorism, because Congress "is highly unlikely to act in the way we want."

Ms. Abraham countered: "I hear what you are saying, but I don't want to give up the fight." In addition, "small companies will need some help," she added.

The CEOs differed over the necessity of having a federal terrorism backstop for liability risks as well as property risks.

Requiring terrorism coverage to protect liability as well as property coverage is critical for members of United Educators, all of which purchase liability coverage, Ms. Abraham said.

Mr. Frazier, however, said he prefers that terrorism liability coverage be optional; only 2% to 3% of his clients purchase such coverage.

Charter proposals

The CEOs were less committed to the concept of an optional federal charter, which has been proposed as an alternative to the current state-based regulatory system in the United States.

Underlying that proposal is a need for greater uniformity in state procedures and processes, Mr. Restrepo said. He has experienced problems created by states' differing approaches in some regulatory matters, although his business operations are confined to the Midwest, he said.

In addition, having a federal proposal calling for an optional federal charter is "a good beating stick" for federal legislators to use to encourage the National Assn. of Insurance Commissioners to adopt more uniform regulations, Mr. Restrepo said.

Mr. Frazier added that some optional federal charter supporters think that such a proposal includes rate deregulation, but it doesn't. Having a charter option without rate deregulation "is the worst of all possible worlds," he said without elaborating.

Mr. Frazier is more encouraged, however, by the unanimous support among U.S. House members last year for a measure that would harmonize the regulation of surplus lines insurance, especially provisions that would clarify a system of premium tax payments for brokers. That issue has been a long-simmering controversy among regulators, who have been reluctant to adopt changes that might cost their respective states premium tax revenue.

Congress' support thus far is "a pretty interesting development," Mr. Frazier said, adding that he is looking forward to Senate deliberations on the issue.

The CEOs also expressed concern about several aspects of privacy issues, including the need to protect the privacy of insurance consumers' personal information and the sale of coverage to protect against identity theft.

It is important to remember that it's the federal government that most often is involved in inappropriate disclosures of personal information, Ms. Reynolds said. To adequately protect consumers, the government has to participate in a privacy protection program, she said.

Image problem

In addition, the executives said they are concerned about legislators'—and the public's—perception of the insurance industry's use of "credit scoring," though several said that term is a misnomer that hurts the public's perception of the insurance industry.

"The biggest misconception is that it (credit scoring) is about credit," Mr. Restrepo said. "What we are really getting at is using a statistically valid technique to identify the probability of loss" so insurers can charge appropriately, meaning that loss-prone customers pay higher premiums, he said.

Referring to the negative perception, "We have done it to ourselves with the language" concerning credit scoring, Ms. Reynolds said. In an effort to improve communication with consumers, Safeco recently launched a drive to rewrite some notices to make them clearer and more understandable, she said.

The CEOs were generally supportive of the goals of the Sarbanes-Oxley Act, which increased some corporate reporting requirements and increased the transparency of some business practices, although a few said the law had gone too far.

"We are definitely in a better place today, but it is onerous," Mr. Restrepo said. He said some changes are needed, but did not elaborate.

Sarbanes-Oxley "does create an alertness that goes through the whole corporate governance" system of a company and emphasizes the accountability of each individual in the chain, Ms. Reynolds said. "You have to hope it roots out some of the excesses."

"The spirit (of the law) is appropriate, but the law is overkill," said Ms. Abraham, who added she is pleased that the law considers her company too small to have to comply with it.

"A post-Enron and post-Spitzer accounting world" also encourages transparency, Mr. Frazier said. Using the best estimates of loss, especially on long-tail lines, is beneficial for the industry as well as investors, he said.