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PIA's 2004 Issues of Focus

Other issues of importance to agents that may see movement this year include reauthorization and reform of the federal flood insurance program, renewal of...
January 20, 2004

Financial Services Modernization Tops Agenda

Financial services modernization tops a list of issues of focus for PIA in 2004.

Other issues of importance to agents that may see movement this year include reauthorization and reform of the federal flood insurance program, renewal of the Terrorism Risk Insurance Act (TRIA), insurance scoring and producer licensing reform.

"At the start of each year, PIA looks at the issues we may be called upon to engage," said PIA Senior Vice President Patricia A. Borowski. "Experience teaches us that sometimes the best assessment of the political landscape is subject to change by unexpected developments. That said, our best assessment is that pressure from Congress to speed up reforms to insurance regulation will remain the top issue in 2004, with several other issues gaining prominence."

What follows is an overview of the legislative and regulatory landscape at the beginning of 2004. PIA National staff assigned to track these issues provide snapshots of what is in the works and how each issue affects PIA members.

Federal Legislative Outlook

By Pete Bizzozero
Assistant Vice President, Federal Affairs
PIA National

Action in Congress during 2004 with potential effects on PIA members can be divided into two broad categories: what lawmakers are likely to do and what some are threatening to do.

As always, warding off possible threats takes precedence. Pressure is building for Congress to pass legislation on insurance regulation. In 2003, the idea of moving to a system based on an optional federal charter for insurance carriers appeared to gain ground. Both the Senate Commerce and House Financial Services committees held hearings on this issue.

These hearings were more an introduction to future discussions on this issue than anything else. Most of the discussion in both sessions focused on the concepts of an optional federal charter versus national standards.

PIA opposes an optional federal charter and supports the concept of national standards.

Proponents of the optional federal charter approach, primarily large insurers, made their standard argument: that the current system is inefficient and hinders insurers from bringing new products to market. Those of us who support national standards countered with our argument that there is no need to create another federal bureaucracy; rather, we should use federal legislative tools to achieve the goal of uniformity.

PIA has always supported state-based functional regulation of insurance that balances the need for national uniformity in standards and the demands of emerging multi-state markets, within the framework of functional state regulation. PIA is opposed to a federalized insurance oversight system, optional federal charters as part of a dual regulatory system, or an exclusive state-only regulatory system.

Consumer groups, like the Consumer Federation of America (CFA), were very active and vocal during the hearings. These groups have taken a somewhat different approach. CFA, which has traditionally supported state regulation, indicated it is considering changing its position. The group expressed an interest in an approach similar to legislation introduced by Senator Ernest "Fritz" Hollings (D-South Carolina).

S. 1373, the Insurance Consumer Protection Act, would establish a commission within the Department of Commerce that would regulate insurance. The commission would be responsible for licensing and setting standards for life, property and casualty lines of insurance. It would also have the power to hold hearings, receive evidence and compile information concerning the business practices of any person, partnership or corporation in the interstate life, property and casualty insurance industries.

Similar proposals introduced over the years, including one by then-Sen. Edward Brooke (R-Massachusetts) in 1976, have been starting points for the kind of discussion now underway. This most recent legislation is opposed by the insurance industry and is unlikely to move - however, it serves as a reminder that Congress is losing patience with the pace of progress in reforming insurance regulation.

We expect that there will be more hearings held on this matter. Representative Richard Baker (R-Louisiana) has indicated a great interest in this issue. It is very likely that we will see some kind of legislation introduced by the end of the year.

Flood Insurance

Reauthorization of the National Flood Insurance Program (NFIP) will be our first priority in 2004, because Congress has given itself a short deadline.

Last November, Congress extended authority for the National Flood Insurance Program through March 31, 2004. This three-month extension provides additional time for Congress to attempt to agree on reforms to the program. The House has already passed H.R. 253, the Flood Insurance Reform Act of 2003. The Senate did not have time to act. H.R. 253 reforms the current flood insurance program in an effort to prevent abuses of homeowners making repeat claims. It also provides for a five-year reauthorization.

PIA's biggest concern with this issue is a rule proposed by the Federal Emergency Management Agency (FEMA) in combination with a federal venue provision that may be included in flood legislation. The FEMA rule would convert all insurance producers - either contracted or employed by Write-Your-Own (WYO) insurers - into "agents acting for the insured."

Partly as a result of our filing of formal complaints, FEMA has postponed these proposed rule changes until May 1, 2004. Since the NFIP authorization expires on March 31, 2004, the rule changes and the reauthorization will have to be coordinated.

At this time, PIA members should not see any changes in their WYO programs. PIA will continue to oppose this aspect of the proposed rule changes by working the FEMA process, proposing legislative clarity in the NFIP reauthorization bill, and working out a solution directly with WYOs.

PIA members may get the call to participate in rapid grassroots campaigns on this issue, as warranted. We'll let you know.

Other Issues

In addition to these two issues, PIA will be working on a number of other issues that could see action in 2004, including association health plans (AHPs), natural disaster legislation, FCC do not fax regulations and the amortization of intangible assets.

One issue that Congress would be well advised to address during 2004, instead of waiting until 2005, is renewal of the Terrorism Risk Insurance Act (TRIA). While TRIA does not expire until the end of 2005, the insurance business cycle is the driving factor for timing a final decision on TRIA's fate, if we wish to avoid market disruptions.

PIA supports renewal of TRIA.

Regulatory Outlook

By Ellen Sanders
Assistant Vice President, Regulatory Affairs
PIA National

Two major issues of interest to PIA members that state legislators and insurance regulators are expected to focus on in 2004 are: regulatory reform and modernization; and insurance scores and CLUE reports.

Regulatory reform and modernization is at the top of regulators' and legislators' agendas. The National Association of Insurance Commissioners (NAIC), National Conference of Insurance Legislators (NCOIL), National Conference of State Legislatures (NCSL) and the Council of State Governments (CSG) have jointly adopted a resolution in support of states remaining the sole regulators of the business of insurance. The resolution also stipulates that the four organizations continue to support efforts to streamline, simplify and modernize insurance regulation and oppose any federal initiatives that could undermine state authority.

These organizations are asking the state legislatures to adopt similar resolutions during their upcoming sessions and forward them to Members of Congress as a show of support for state regulation and opposition to federalization of insurance regulation.

In addition, the NAIC is promoting ASSURE, The Alliance for Sound State Uniform Regulatory Efficiency, non-profit coalitions made up of consumers, legislators, and industry and business leaders who believe that state governments are better equipped to regulate the insurance industry and protect America's consumers. Thus far, ASSURE coalitions have been formed in eleven states.

How to Get There?

While there is widespread agreement on the goals, there are disagreements on how to achieve those goals. Some parties urge starting with rate and form modernization, while others promote market conduct reform as a starting point. Some parties want the legislators to legislate the reform measures, while others want the legislators to grant regulators broad authority to devise and implement the necessary modernization measures. And of course there are those legislators and regulators who think that their respective states have the best insurance regulatory schemes and that all the other states should modernize and change to be like them.

In September 2003, NAIC adopted a Regulatory Modernization Plan that is based on seven principles:

  1. Consumer Protection
  2. Market Regulation
  3. Speed to Market for Insurance Products
  4. Producer Licensing Uniformity
  5. Insurance Company Licensing Standardization
  6. Solvency Regulation
  7. Streamline Approval Processes for Change in Insurance Company Control.

NAIC's accompanying work plan details projects and projected completion dates through 2008.

The states will not stand idle while NAIC implements its modernization work plan. Some states plan to tweak existing laws, such as adopting amendments to their recently enacted producer licensing laws so that these laws are more closely aligned with other states. Other states are considering reforming and streamlining the insurance product approval process. A few may consider a wholesale reform of their insurance regulatory scheme.

Insurance Scoring

Other areas of probable widespread legislative and regulatory reform are insurance scores and CLUE reports. There has been much public out-cry and concern about the use of both reports and the impact on the availability and costs of insurance. Some of the outcry is based on misunderstandings or misinformation. But policymakers have heard many horror stories from their constituents and will be looking at ways to address their concerns. Insurance industry representatives will be keeping close tabs on this area to make sure that any new laws or amendments do not negate their perceived benefits.

The coming year is likely to see debate and possible solutions in other hot areas, such medical malpractice, regional or national insurance compacts for approval of certain insurance products, and auto insurance reform.

The existing insurance regulation scheme will continue to be under scrutiny from the Congress and others who seek to federalize oversight of insurance regulation.

Therefore, states will continue to study and initiate reforms that streamline and modernize insurance regulation at the state level, with NAIC, NCOIL and NCSL making major pushes for states to adopt the needed changes.

In addition, states will endeavor to address hot issues as they arise - such as considering proposals to address the concerns raised by constituents regarding insurance scores and CLUE reports - so as to reduce the spotlight on hot button issues that Congress may feel they can better address at the federal level.

This article originally appeared in the January 2004 PIA Connection.