NEWS
Legal system abuse, inflation, regulation
The abuse of the US legal system, economic inflation and the politicisation of insurance regulation are the three biggest issues for insurance leaders in the US.
All three issues will be addressed at the American Property Casualty Insurance Association’s (APCIA) annual conference taking place in Dallas this week, says David Sampson, the organisation’s president and chief executive officer.
“When I speak to our members, the leaders attending our event, those are always the top three issues,” Sampson told APCIA Today.
“The order sometimes changes but all three are always there. We will cover all those issues in this event while again stressing the importance of insurance to the economy, to society. That is why we chose our theme: ‘Insuring what matters most’.”
Sampson says that, for him, the theme encapsulates why the insurance industry is so important. In the US alone, it protects some 223 million vehicles and 90 million homes. In the context of recent hurricane activity, he added: “That brings the value and security of the industry to the front of mind. When bad things happen, we are there for people.”
Because of this, he says, it is essential the industry tackles issues that threaten to undermine it. The first of those is abuse of the US legal system, which represents a major driver of rising insurance loss costs: social inflation.
APCIA is pushing for an array of reforms including a clampdown on third party litigation financing and restrictions on the use of secondary source materials in court.
“When juries understand litigation financing and the idea that there are investors and wealth funds behind some of these cases, it does make a difference. It is about transparency,” Sampson said.
“When bad things happen, we are there for people.”
David Sampson, APCIA
This issue is particularly severe in some states including Florida where many insurers have been forced into insolvency in the past year as a result of reinsurance capacity withdrawing. This is because of the broken legal system in the state, something Sampson describes as “a manmade catastrophe”.
“This problem has been caused not by natural disasters but by public policy and regulation. All the problems in Florida, the downgrades, the insolvencies, occurred during a period where no hurricane made landfall. So the focus needs to be on the manmade component of it. Public policy choices and regulatory actions are undermining the existence of a stable insurance market,” he said.
The second concern, which is harder to control, is around macroeconomic events including inflation. While APCIA cannot influence this directly, it is working hard to help state regulators better understand that insurance inflation costs are rising faster than the consumer price index.
“We have now presented research papers and evidence to some 46 regulators, so they can better understand the challenges insurers are facing when they look at submissions for rate filings,” Sampson said.
The politicisation of insurance regulators is another big concern. He is clear that the statutory authority of state insurance regulators extends only to market conduct and ensuring solvency. Yet many are overstepping the mark in their roles, limiting the ability of insurers to use risk-based pricing, for example. Some are also seeking to stop insurers working with companies in certain sectors they deem undesirable, such as fossil fuels.
“We are going to be vigilant in calling out regulators who exceed their statutory authority.”
APCIA is willing to take direct action to stop this. In February this year, along with the Professional Insurance Agents of Washington, and the Independent Insurance Agents and Brokers of Washington, it filed litigation to prevent the implementation and enforcement of Washington Insurance Commissioner Mike Kreidler’s rule banning the use of credit-based insurance scores in the rating and underwriting of insurance. In August, a judge ruled in favour of the organisations, agreeing that Kreidler exceeded his authority.
“All we want is for state regulators to operate within their statutory authority,” Sampson said. “We hope that sent a pretty strong signal on how we are going to be vigilant in calling out regulators who exceed their statutory authority beyond solvency and market conduct. We will not sit idly by and allow that to continue. What you saw in Washington State we are prepared to do in other states.”
In addition to these core concerns, Sampson notes that the conference will offer insights into some of the current geopolitical tensions in the world. He is looking forward to interviewing former President George Bush and listening to his views on the erosion of democracy and the rise of authoritarianism around the world.
“In recent years, we have been told America could look inwards, look after its own interests. I think the past year, and the war in Ukraine in particular, has shown that our economic health is very much impacted by global geopolitical events. And insurance is a global business. We cannot ignore that,” he concluded.
Main image: Shutterstock / r.classen