The National Association of Mutual Insurance Companies (NAMIC) – which has more than 1,400 member companies that underwrite 43 percent ($196 billion) of the property/casualty insurance premium in the United States – has set its federal affairs agenda for 2006.
Federal issues affecting NAMIC member companies were discussed and prioritized last month at NAMIC’s annual federal affairs committee meeting. According to David Winston, NAMIC’s senior vice president of federal affairs, two of the top legislative priorities on the agenda are insurance regulatory reform and asbestos reform.
“The top items to be considered in this second session of the 109th Congress promote the core values and strengths of NAMIC members,” Winston said in a statement.
“On insurance regulatory reform, NAMIC continues to support a reformed state-based system of insurance regulation,” said Winston. “The major proposal being considered in the House of Representatives this year will likely be a bill co-authored by House Financial Services Committee Chairman Michael Oxley, R-Ohio, and Capital Markets Subcommittee Chairman Richard Baker, R-La., called the State Modernization and Regulatory Transparency (SMART) Act .”
Winston expects that the SMART Act Discussion Draft will be formally introduced in the House of Representatives in the spring with hearings to follow. On the Senate side, Sens. John Sununu, R-N.H., and Tim Johnson, D-S.D., will likely introduce an optional federal charter for both the life and property/casualty insurance industry.
Another top priority for NAMIC is asbestos reform legislation. The Fairness in Asbestos Injury Resolution (FAIR) Act, S. 852, would create a privately funded, publicly administered $140 billion trust fund that would provide resources for an asbestos-injury claims resolution program. On Feb. 14, during the FAIR Act debate, the Senate failed by a vote of 58-41 to overcome a budget point-of-order filed by Sen. John Ensign, R-Nev.
“Assuming that efforts to revive S. 852 prove unsuccessful, Congress will be able to consider true asbestos reform legislation,” said Winston. “We will continue working with Congress on a medical criteria approach to asbestos reform legislation.”
Other NAMIC key issues to be covered this year are terrorism risk insurance, taxation of small property/casualty insurance companies, flood insurance reforms, building codes, and natural disasters.
NAMIC is focused on finding long-term solutions for terrorism risk insurance. On Dec. 16, 2005, just days before recessing for the year, the House and Senate were able to meld their two differing TRIA extension bills. “The legislation extends TRIA for two years and scales back the scope of coverage. For instance, it no longer mandates coverage for farm owners multi-peril insurance, a position strongly advocated by NAMIC on behalf of its farm mutuals,” stated Winston. “Also, the bill does not include coverage for NCBR, a provision in the House-passed bill that NAMIC opposed.”
The legislation provides for a “President’s Working Group” to be appointed to review the effectiveness of the program and make recommendations for improvement. “NAMIC will work with Members of the House and Senate to create a permanent public/private partnership on terrorism coverage when the TRIA extension expires December 31, 2007,” said Winston.
It has been public policy to provide small, rural, farm-oriented insurers with a tax election status so that all Americans could have access to insurance coverage at a reasonable cost. Section 831(b) of the Internal Revenue Code allows property/casualty insurance companies with direct or net written annual premiums not exceeding $1,200,000 to elect to be taxed on their net investment income. This election level has not changed since the Tax Reform Act of 1986 created Section 831(b). If it were indexed in order to account for inflationary changes since 1986, the investment income election would be approximately $2 million.
“NAMIC strongly supports the expansion of Section 831(b)(2). The modification of this section is very important to the communities that depend on small property/casualty insurance companies to provide them with affordable property insurance,” said Winston. “Many small companies are approaching the current $1.2 million limit and both they and their customers will be adversely impacted if it is not raised. With the increased election level, tied to an annual adjustment in the cost-of-living, these insurance companies can continue to keep premiums low in rural areas where larger insurers either do not write coverage or charge higher premiums than consumers can afford.”
Last year, NAMIC succeeded in getting legislation introduced to increase the Section 831(b) investment income election from the current $1.2 million to $1.97 million with an annual cost-of-living adjustment. H.R. 3360 was introduced by Rep. Jim Nussle, R-Iowa, on July 20 and its companion bill, S. 1553, was introduced by Senator Kit Bond, R-Mo, on July 29.
In 2005, flood claims arising from Katrina, Rita and Wilma exceeded $25 billion dollars. In order to pay all of these claims Congress must pass legislation which allows the National Flood Insurance Program (NFIP) to borrow money from the Treasury.
Congress created the NFIP in 1968 to address the increasing costs of taxpayer funded disaster relief for flood victims and the increasing amount of damage caused by floods. With private insurers unable to underwrite the risk of massive floods, it reportedly became clear that some form of federal program must be created.
The program is designed so that the premium dollars that are taken in every year (roughly $2 billion) are used to pay out any flood losses that are incurred by policyholders. The program was also designed to utilize the already existing distribution system that exists in the private market.
The year 2005 proved to be too costly for the program. The flood losses were so great in the first 10 months of 2005 that the estimated claims are expected to exceed $25 billion dollars. These claims are greater then all claims the NFIP has paid out from 1968-2004 combined.
Due to the extraordinarily large number of claims, the NFIP quickly ran through all of its funds. In order to pay all of its claims, Congress had to up the NFIP’s borrowing authority several times in 2005. Once again, Congress is faced with passing additional borrowing authority bringing the final level to roughly $24 billion.
“While NAMIC agrees that there needs to be additional reform to the NFIP, we do not believe that these reforms should stand in the way of Congress passing the additional borrowing authority that the NFIP has requested. NAMIC believes that we must take care of those homeowners who did the right thing by purchasing flood insurance, and we must do so immediately,” said Winston.
Another priority facing NAMIC this year is standardized building codes. Standardized building codes — and adequate enforcement of those codes — play an increasingly important role in public safety and loss prevention, even in states that do not have a major catastrophe exposure. In addition to saving lives and reducing property loss, statewide building codes based on nationally recognized standards can reduce the need for public disaster aid; promote a level and consistent playing field for design professionals, suppliers and builders; create a minimum standard upon which consumers can rely; contribute to the durability of structures; and, in some locations, favorably affect the affordability and availability of insurance.
However, state standards for construction, code-related inspection and enforcement vary widely across the country. Some states have adopted statewide building codes applicable to virtually every type of structure, while others employ lesser degrees of regulation and code applicability — or none at all. Where statewide codes exist, it is not uncommon to allow individual jurisdictions to deviate from the state standard, occasionally resulting in a weakening of the model minimum standard
“NAMIC strongly supports more stringent building codes; however, we recognize that enacting these laws at the state level has been very difficult. Therefore, there is a critical need to develop federal incentives to encourage states to adopt these codes,” stated Winston.
“NAMIC believes that exposures to mega-catastrophes present a tremendous challenge to the insurance industry and we are exploring several different avenues to address the problem,” said Winston.
The high costs of recent natural disasters combined with the fear of future catastrophes have restricted homeowner’s insurance availability in disaster-prone regions. The Atlantic and Gulf seaboards and Hawaii are prone to hurricanes, and several western, northwestern and mid-western states experience earthquakes. Multi-billion-dollar disasters, such as Hurricane Katrina and the Northridge Earthquake, demonstrate that insurance companies could become insolvent if overly concentrated in disaster-prone areas.
According to NAMIC, with the damage that was caused by Hurricane Katrina, Congress has turned its focus to this issue. Early estimates have put total damages in excess of $100 billion dollars, and insurable damage anywhere between $20-$40 billion dollars. With the massive loss of life, and property, it will be hard for Congress to ignore this issue. To date, there are four different approaches that have been discussed.
“Recognizing that companies have differing needs, depending on their books of business, NAMIC suggests that there could be several solutions to the problem,” said Winston. “NAMIC has created a task force which consists of over 15 of our member companies to explore the different proposals that are out there.
“Our federal affairs department will continue to press these issues in Congress as well as energize NAMIC’s grassroots base through its Congressional Contact Program, We look forward to working with NAMIC member companies to advance our legislative agenda.”
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