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Insurers Anticipate a Year of 'Defense' in 2009

Source: BestWire Services

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Posted on 13 Jan 2009

U.S. property/casualty insurers are anticipating renewed legislative and regulatory battles in the states in 2009 amid a less-friendly political climate and a embattled economic climate.

Representatives of property/casualty insurers have said that Democrats who made significant gains in state legislatures nationwide will be more receptive to the arguments of trial lawyers and consumer groups on issues including credit-based insurance scoring, rate approvals and other issues,

It is early for determining which states will see the most significant actions on these issues, but the overall trend is one of "defense, defense, defense," said Joe Thesing, state affairs director for the National Association of Mutual Insurance Companies. "NAMIC and its member companies are very much poised for a year of defense."

Moves to restrict the use of consumer credit data in insurance scoring have received a boost from increasing consumer concerns about the economy over foreclosures and job losses. Florida, Nevada, Delaware Wisconsin are states in which this issue may resurface, Thesing said.

"Every year, I'm surprised to hear some states pick it up," said Tammy Velasquez, vice president and director of state affairs for the American Insurance Association.

"Credit is a very important underwriting criteria. In most states, virtually every insurer uses it," said Robert Hartwig, president of the Insurance Information Institute.

In December, the U.S. Federal Trade Commission ordered nine of the largest homeowners insurers, representing 60% of the U.S. market, to submit information on how consumer credit records are used in their underwriting and rate-setting models.

Insurers have had success in recent years in advancing "rate modernization" laws providing file-and-use provisions and standards less restrictive than prior approval. Since 2003, 22 states have adopted rate modernization steps, based on a National Conference of Insurance Legislators model, according to NAMIC.

But insurers are expecting push-back in 2009, fueled by consumer concerns. Insurers are already fighting regulatory changes in California and Colorado..

"The difficult economic climate leads some to point to insurance companies for answers," Velasquez said.

On insurers' radar is the potential for new "bad faith" legislation that could open the door for increased lawsuits and damages awards. Washington state voters adopted it by ballot referendum in 2007 and Minnesota enacted a compromise bill in 2008. In 2007 and 2008, bad faith bills were introduced in 16 states, according to NAMIC.

"Based on our analysis of the political climate, we expect the trial bar to aggressively push legislation in statehouses across the country that will create more opportunities to file lawsuits and inflate damage awards," said John Lobert, senior vice president, state government affairs for the Property Casualty Insurers Association of America.

Auto repair bills will also see legislative attention, particularly in northeast and New England states, Velasquez said. Insurers and the collision repair industry have battled over issues including steering rules and labor rates, which are notable as significant cost drivers for automobile insurance, Lobert said.

As state governments struggle to balance budgets, they can be expected to look toward the insurance industry for additional revenues, Velasquez said. "They will pick up every rock they can look under for taxes, fees and surcharges," she said.

Hartwig said the big "X" factor for insurers is the potential for a new level of federal involvement in insurance regulation. "This year, hanging over everything is the specter of federal reform," he said. "A year from now, will insurers be answering to both a state and a federal insurance regulator?"


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