Insurance Regulation 2012: Reading the Tea Leaves

Insurance industry auguries expect insurance regulation to be a significant issue in the coming year.
Insurance industry insiders predict that insurance regulation will take center stage in governmental affairs in 2012, and expect that insurance regulatory issues will have an increasing effect on business in the new year.

Mark A. Hofmann of Business Insurance, for instance, expects that regulators will dominate government affairs during 2012 as lawmakers focus on election-year politics with limited risk management and insurance issues on the congressional agenda. He points to the new Federal Insurance Office's report on insurance regulation modernization, due to Congress this month, as the "first major item on the regulatory agenda."[1]
Other regulatory issues include ongoing implementation of provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. And although almost certain to be focused on election-year politics, Congress nonetheless will have a role to play in the National Flood Insurance Program.[2]
Regulators will be "dominating the governmental affairs scene."
To those who think the 2012 elections and congressional gridlock will keep the government occupied, both Jimi Grande, senior vice-president of the National Association of Mutual Insurance Companies, and Joel Wood, senior vice-president of the Council of Insurance Agents & Brokers in Washington, disagree. Wood says regulators will be "dominating the governmental affairs scene" in the insurance industry in 2012, and Grande suggests that the regulatory part of the federal government "will be working feverishly" despite the election year or legislative gridlock.[3]

The FIO's report could be a critical event for the insurance industry.
The FIO's insurance regulation modernization report could be a critical event for the insurance industry, potentially setting the stage for "interaction among the FIO, the National Assn. of Insurance Commissioners and the states for years to come," according to Wood, as reported by Business Insurance.[4]

Tom Litjen, vice-president of the Property Casualty Insurers Association of America, agrees that the report will provide significant insight into "the direction the FIO is setting for itself."[5]

Risk management issues are expected to be important points on many state government agendas, as well, including risk assessments and natural catastrophe-related matters, according to another recent Business Insurance article.[6] Those points include:
  • A push to create a New York state Office of Risk Assessment to "integrate comprehensive risk management into the state's operations";
  • The possibility of legislation involving Florida's hurricane catastrophe fund and/or the Florida Citizens Property Insurance Corporation;
  • Ongoing regulatory implementation regarding the Texas Windstorm Insurance Association;
  • The possibility that regulators may look to increase the relatively small market penetration of California's Earthquake Authority; and
  • The potential for further legislation in the risk management area related to last year's Hurricane Irene and the Virginia earthquake.[7]
Future insurance regulation will not only address catastrophe concerns and risk assessments, but regulatory developments are expected to have an increasing impact on businesses, particularly small business, in 2012.
The insurance industry has seen four states recently pass legislation defining construction defect claims as occurrences under commercial liability policies—a trend likely to continue in some places, experts say.[8]
In the same vein, Insurance Regulatory Law expects to see more states moving to adopt the recent amendments to the National Association of Insurance Commmissioners model act and regulation relative to insurance holding companies, especially as the NAIC appears to be moving forward with incorporating those amendments into its state accreditation standards. The NAIC has also been moving forward with initiatives on suitability in annuity transactions as well as reinsurance credit.

Paychex, a leading provider of payroll, human resources and employee benefit services, suggests that regulatory issues could require small business owners to change the way they operate.[9]

Health care reform has already begun to fundamentally change the health care and health insurance industries.
Among those changes are the potential legislative and regulatory impacts of the Affordable Care Act. Even though the Supreme Court has recently agreed to hear challenges to the implementing legislation, health care reform has already begun to fundamentally change the health care and health insurance industries, and many state and federal agencies are continuing implementation, all of which will impact businesses going forward.[10]

The NAIC, for example, recently adopted three (3) new white papers to assist state regulators with the implementation of the Affordable Care Act's health insurance exchange, including white papers on governance, adverse selection and the role of navigators/producers.

In 2012, "several states will be enacting stricter legislation to more heavily fine companies for misclassified workers," which could impact both workers' compensation insurance coverage and premiums. [11]

Changes in security and privacy laws, financial reform and employment law regulations could also affect small businesses and the insurance industry in indirect ways.[12]

1Insurance regulation takes center stage, Mark A. Hofmann, Business Insurance, January 1, 2012.
2Insurance regulation…, Id.
3Insurance regulation…, Id.
4Insurance regulation…, Id.
5Insurance regulation…, Id.FN3
6 Risk management concerns on state agendas for 2012, Mike Tsikoudakis andRodd Zolkos, Business Insurance, January 1, 2012.
7 Risk management concerns…, Id.
8 Risk management concerns…, Id.
912 Laws That Will Affect Your Business in 2012, David Mielach, BusinessNewsDaily, December 28, 2011.
10Supreme Court Agrees to Hear Health Care Reform Challenges, But Health Care Reform Already Fundamentally Changing the Health Care and Health Insurance Industries, Van R. Mayhall, III, Insurance Regulatory Law, November 15, 2011.
1112 Laws…, Id.
1212 Laws…, Id.

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