RiskProf

Sometimes Ya Gotta Wonder

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.

Just when you thought it was safe ...

E L Eversman (via an intriguing periodical called Collissionweek $) notes that the Avery plaintiffs are asking the Illinois Supreme Court to reconsider its Avery decision claiming they

“ they were denied due process by the participation of Justice Lloyd Karmeier in the decision. Karmeier is a newly elected Justice who was purportedly well-funded by State Farm (directly and indirectly) in his campaign. Among other contributions that Plaintiffs say can be traced to State Farm, its employees, and its counsel, Plaintiffs cite to a JUSTPAC contribution of over $1.1 million. According to Plaintiffs, JUSTPAC is an organization founded by State Farm lobbyist and attorney, Bill Shepherd.”

Yeay. Let's (hic) Party

This just in ....

NEWS ALERT
from The Wall Street Journal

May 16, 2005

The Supreme Court ruled states may not pass laws blocking outside wineries from shipping directly to customers in a 5-4 decision that strikes down laws in 24 states that bar interstate shipments.

What about Balkanization?

A former boss*, Bruce Fein, critiques the state of federalism today.  He is taken to task by Ramesh Ponnuru at the Corner for, as Walter Olson puts it, a weak op/ed.  However, almost everyone seems to forget that while the 50 state laboratories idea sounds great, there are many areas of state law that impose externalities on people and business outside the state.   Sometimes its time to bury the lab rats and move on.

For example, poor insurance regulation imposes burdens on both in-state and out-of-state consumers.  Out-of-state consumers and firms potentially face higher costs if regulation imposes additional costs without providing any benefit.

Further, by allowing the 50 state laboratory idea to go unchallenged we end up equating med mal reform and product liability tort reform.  Both may be good ideas, but one (med mal) may truly be local really subject to state jurisdiction and the other (prod liability) may be truly interstate in nature.

State interference with interstate commerce was something the founders tried to prevent by granting Congress the commerce power.  Congress could step in and pre-empt 50 balkanizing experiments if it so wanted. The same is potentially true for insurance regulation--50 states are involved in aspects of regulation--some do a pretty good job, but some do not.  The question is whether we ever say the experiment is a failure and pre-empt the puppy. 

I haven't given this question a great deal of thought, but I will give it some as I try to order a bottle of

California

wine over the internet!

_________________________
*Bruce was my boss when he was the General Counsel at the FCC during the first Regan administration. (Boy, do I feel old). I was a summer clerk and I wrote a memo on whether an administrative agency had the power to declare a law unconstitutional. (The answer was no, as I recall and I am really stretching here, because even independent agencies were creatures of Congress and therefore could not overrule the legislature that created them.)  The law in question was the portion of the Communication Act underlying the FCC's Fairness Doctrine which was eventually repealed by Congress and which some worry will be resurrected.