The State of State Affairs
While much of the focus of the regulatory front has focused on Capitol Hill, insurers are engaging in some pitched battles at the state level.
Insurance Networking News, 05/01/2010
During the sturm and drang of the health care debate, it might have been easy to assume that the regulatory fate of the insurance industry is determined in Washington.
While federal regulation no doubt has a profound ability to alter the way insurers conduct business, the more immediate legislative concerns for the industry are playing out in state houses across the country. Many of the legislative battles, such as efforts to restrict the use of credit scoring in underwriting by insurers, are familiar.
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However, this year, new conflicts borne out of the economic crisis arose, and the industry found itself defending the sanctity of its solvency funds as cash-strapped states looked to replenish their coffers by any available means.
With the stakes so high and so much in flux, insurers can ill afford to regard these battles are far from a spectator sport.
If federal efforts to reformthe way the insurance industry is regulated unfurl with a pace and grace reminiscent of a lumbering elephant, then efforts at state levels are more akin to swarm of bees. Much of the attention this year has centered on the health care debate in the nation's capitol, yet profound and immediate changes also are happening across the country as state legislative sessions come to a close.
While much of the action at the state level revolved around issues that gestated for many years, such as efforts to restrict the use of credit scoring in underwriting, a new issue pushed itself to the fore this year. As cash-strapped state governments looked for any available source of revenue, workers' compensation funds and other pools intended to ensure the solvency of insurance companies became tempting targets, notes Neil Alldredge, SVP, state & policy affairs for the National Association of Mutual Insurance Companies. "This is a dance we're having to do in many different states," he says.
So far, efforts to defend insurance funds from depredation have been largely successful. In Maryland, efforts to transfer $20 million in surplus funds from the State's Injured Workers' Compensation Fund to help fill a budget deficit were defeated. "The legislature correctly recognized that IWIF's surplus belongs to its policyholders and not the state," says Tammy Velasquez, VP and director of State Affairs at the American Insurance Association (AIA). "We fight those battles because it's policyholder money; it's not the state's money to take."
Raids on funds are not the only way in which states are looking to the relatively resilient insurance industry as a financial lifeline. Velasquez says the industry has also been fighting against rising premium taxes. "Where this really hit the insurance industry is in those areas where we've seen increased premium taxes," she says. "We've been battling those across the country in states from Virginia to New Mexico."
Oddly, Velasquez says the weak economy has helped in the sense that it has stalled some other regulations that would have been more feasible in boon times. "A few years ago we saw a proliferation of bad-faith bills," she says. "We really haven't seen those this year. Most legislatures this year were faced with huge state budget deficits. So you saw some states dealing with nothing but their budgets."
Kevin Ryan, president of the Professional Insurance Agents of New York State Inc., agrees that now is not an easy time to get the ear of state legislators. "Financial problems at the state level are going to overshadow everything else going on," Ryan says.
VICTORIES AND SETBACKS
However, some states, such as Kansas, managed to pass legislation with profound implications for the insurance industry. In April, the Kansas Legislature passed HB 2501, which affords consumers additional protections regarding the use of credit information. The bill was crafted with considerable input from the insurance industry, which opposed a bill in the previous legislative session that would have banned the use of credit scoring altogether.
"Kansas took their insurance scoring law and improved it by adding protections for individuals experiencing extraordinary life circumstances," says Joe Woods, VP of state government affairs for the Property Casualty Insurers Association of America (PCI), noting that the legislature chose to adopt guidelines from the National Conference of Insurance Legislators regarding the extraordinary life circumstance model in lieu of banning the use of credit scores.
"The use of the (NCOIL) model language for extraordinary life circumstances was instrumental in overcoming many of the concerns regarding the use of credit-based insurance scores," Woods says.
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