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Risk management concerns on state agendas for 2012

Posted On: Jan. 1, 2012 12:00 AM CST

Risk management concerns on state agendas for 2012

As 2012 begins, there are several state-level issues around the United States with potential risk management implications.

The Risk & Insurance Management Society Inc. has several state issues it expects to follow this year, including its work with New York state Sen. Jeffrey Klein, D-Bronx/Westchester, to push for the creation of a New York state Office of Risk Assessment, which would integrate comprehensive risk management into the state's operations, RIMS said in a statement.

New York-based RIMS also plans to closely monitor state developments in implementing the surplus lines provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

And the Des Plaines, Ill.-based Property Casualty Insurers Assn. of America will track legislative developments involving the Florida Hurricane Catastrophe Fund.

“I think we're more likely to see some legislation down in Florida. We have not fully vetted it internally, but I think there's going to be a bill down there on that cat fund” to expand capacity, said Paul Blume, senior vp of state government relations for the PCI. “That's the most major state issue.”

Overall, it's been a mixed bag for state property residual mechanisms, said Jim Whittle, vp and chief claims counsel for the American Insurance Assn. in Washington.

“While the Texas Windstorm Insurance Assn. was put on better financial footing, and regulatory implementation is ongoing there, Florida Citizens (Property Insurance Corp.) has grown more than 14% in the last year, while the Florida hurricane cat fund has a multibillion-dollar deficit for its exposures,” Mr. Whittle said.

“At the same time, California's Earthquake Authority has only small market penetration for that important peril. On the positive side, however, Louisiana Citizens (Property Insurance Corp.) policies in force have been stable if not declining,” he said.

Further risk management-related legislation also may result from last year's Hurricane Irene and the Virginia earthquake, and might address catastrophes and possible coastal and flood exposures, as “we have already seen regulations related to the application of hurricane deductibles,” Mr. Whittle said.

The insurance industry has seen four states recently pass legislation defining construction defect claims as occurrences under commercial liability policies—a trend likely to continue in some places, experts say.

While PCI isn't aware of any other states planning to pass similar legislation, the trend is likely to be ongoing, Mr. Blume said.

“While a few states have sought to define occurrence, the vast majority have not, recognizing the importance of allowing the contracting parties, insurers and policyholders to define such important terms,” Mr. Whittle said. “Nonetheless, we do expect similar legislation in some places in the coming year.”

Harold Pumford, CEO of the Assn. of Governmental Risk Pools in Prague, Okla., said he currently doesn't see too much on the horizon in terms of state legislative activity that might affect public entity risk pools.

“About the only thing is the continuing discussion in New to what is adequate surplus,” Mr. Pumford said. “The issue there is some in the Legislature believe the pool has higher surplus than it should have.”

That debate has centered on a pool operated by the New Hampshire Local Government Center, which some legislators argue is maintaining excessive surplus that should be returned to the pool's member municipalities, Mr. Pumford said.

“With the really tight budgets and everything, everybody is looking for any money that they can come up with,” he said.

Mr. Pumford noted there also has been interest in some legislative quarters in Illinois in passing legislation that would establish a time frame in which pool members could return to a pool after giving notice they were withdrawing from the pool. Such legislation has been introduced previously in Illinois, but it has been unsuccessful, he said.

On the captive and alternative risk transfer front, Robert H. Myers Jr., managing partner of the Washington office and co-chair of the insurance and reinsurance practice at Morris Manning & Martin L.L.P., said, “We have some sort of national issues that involve the states,” rather than state legislative issues of concern.

“I don't know of any state law that is proposed to be changed that is a problem,” said Mr. Myers, who serves as general counsel of the National Risk Retention Assn.

The RRG community will be watching as states enact National Assn. of Insurance Commissioners accreditation requirements addressing risk retention groups, Mr. Myers said.

“The NAIC accreditation requirements for risk retention groups are being incorporated into state law,” he said. “For states that domicile risk retention groups, there will be more compliance requirements.”

Mr. Myers and others involved with RRGs, captives and the alternative risk transfer industry also will watch some states' efforts to restrict the ability of RRGs domiciled elsewhere to write business in a particular state.