The National Underwriter (reg req) reports today that a Federal Surplus Lines bill is going to the House in September. I haven’t been following this closely, but in essence it is a bill designed to reduce the burden of multiple state regulations and tax policies on surplus lines carriers. These carriers are generally not licensed in every state, but often step in to provide coverage for hard to place risks or in states where insurance is hard to buy for certain types of risk. For example, during the med mal crisis, surplus lines insurers provided med mal cover and in Florida many are writing homeowners insurance for high risk / high value properties.
Surplus lines companies are often taxed at a relatively high rate for coverage in a state and there are issues with actually obtaining the states’ proper tax collection. While this bill is supposed to make it easier for the companies to operate and for the states to get their tax receipts, it does something else too. It mandates professional qualifications for the purchasers of surplus lines coverage.
The main alteration to the bill increased the qualifications for a “qualified risk manager” required to be employed by a commercial insurance buyer if that company wanted to seek coverage on the surplus lines market without first going to the admitted market.
Now, the bill requires a “qualified risk manager” to have an advanced degree in risk management, as well as five years of experience and at least one designation showing competency in risk management from an organization such as the American institute for CPCU or the National Alliance for Insurance Education and Research. [emphasis mine]
Why is Congress imposing restrictions on the qualifications of buyers? Businesses have been buying this coverage for years. Are they doing a bad job of doing this? It is not even a “consumer issue”. In a separate, but related article from the National Underwriter, it appears the Consumer Federation of America is putting its two cents in trying to expand their activities into protecting business.
[The] CFA opposes the bill because it [could leave consumers vulnerable in the event of insurer bankruptcy and] is based on many faulty assumptions, including the fact that it assumes large buyers of insurance don’t need protections normally provided in an insurance transaction, such as protection from deceptive sales practices.
So GM can’t buy insurance unless it has a sophisticated risk manager because it does not get the same protections that ma and pa consumer would get? If deceptive sale practices are involved state law will always provide a remedy and business are in the best position to take advantage of the remedy. The CFA asserts that the protections for business are needed given the NY Attorney General’s bid rigging investigation, but that seemed to work out without resorting to state insurance law protections.
My employer (and myself) would benefit dramatically from such proposed paternalistic protection policies as we have a large (and pardon me while I brag—well known) program in risk management. It doesn’t make sense for Congress to micro manage the professional requirements to keep business safe. In a market economy we don’t want safe, we want to encourage profitable risk taking.
Update: Robert Sargent at Specialty Insurance Blog has more on the bill and the issue of Surplus Lines and placement of coverage.