P&C the November 2013 issue

Lovely Thought

Nobody’s buying the idea that Congress will compromise on anything, but somehow it will all work out.
By Joel Wood Posted on November 1, 2011

What follows is my executive summary of conversations on matters large and small at the Insurance Leadership Forum in Colorado Springs.

First, unsurprisingly, I heard disdain over the broken politics surrounding debt debate in Washington. My unscientific guesstimate, based on scores of discussions, is that, on the approval meter, Congress today rates about one percentage point higher than Bernie Madoff.

To the extent that execs were looking for a profound observation from me, I provided an optimistic view. It is this: The debt-reduction super-committee has a window, between now and the end of the year, to really get it right, to orchestrate a massive compromise on taxes, discretionary spending and entitlements. Think of House Speaker Tip O’Neill and President Ronald Reagan in 1983 on Social Security, or the same duo on tax reform in 1986. Think of Bill Clinton and the Republican Congress on welfare reform in 1996. There is a remarkable opportunity for both parties to jump off the cliff of debt reduction together, arm in arm, leaving neither party able to blame the other next year.

Several Council attendees took in my theory with interest and a glimmer of hope. But nobody bought it. And, really, neither did I. But it’s a lovely thought.

I’ve heard for two years how businesses have been stowing away cash because of economic and political uncertainty, exacerbated by the regulatory environment. I heard many similar stories from the upper ranks of the commercial insurance industry. Many firms are doing quite well, underscoring the fact that the Insurance Leadership Forum is populated almost exclusively by the marketplace winners. But the unrelenting soft commercial market, combined with anxieties on the healthcare reform front, creates a palpable tension and weariness.

Regarding the healthcare reform law, there is growing belief that, without major changes, the evolution of federal control could lead to a death spiral of employer-sponsored group health plans. Perhaps asking insurance executives what they think about the law is akin to asking labor union members whether they’re fans of Wisconsin Governor Scott Walker. But Council member firms are the ones who are best suited to survive in difficult waters and the ones with the most resources to provide value to clients who, themselves, are frightened by the ever-escalating costs of health plans. Even the most gung-ho of brokerage leaders are worried about the viability of the system, particularly as we get closer to starting exchanges in 2014.

Unlike property-casualty, of course, health insurance markets are highly concentrated and regional, but I heard universal concern—and varying levels of enthusiasm—about the evolving compensation models of plans. Everyone agrees that fees are more in vogue than commissions, but the regulatory and legal environment is far from clear as health insurers pursue alternative strategies for compensation.

In several meetings, I asked groups of brokerage CEOs if they were aware of any policies that might exceed the 80% and 85% minimum medical loss ratios (MLRs) in effect this year, which would trigger rebates to plan participants. No one presented a single anecdote. That may be used as ammunition by advocates of the MLR, but it still doesn’t justify them.

I got an earful from brokers and company leaders on states’ chaotic enacting of the Nonadmitted and Reinsurance Reform Act—the surplus lines law that is a part of the Dodd-Frank regulatory overhaul. States have yet to agree on a single common allocation formula for premium-tax remittance, much less on whether they should collectively share or keep all of the premium tax for themselves.

More frustrating to Broadmoor attendees was the fact that many states have blatantly disregarded the congressional intent of the law, which was to make the system simpler, with a single standard for multi-state placements. Instead, we’ve seen efforts to require brokers to submit to even more bureaucratic reporting requirements.

Attendees at the ILF, particularly on the brokerage side, are leaders of their firms, all of which are sophisticated. One would think that issues such as new reporting requirements for allocation of casualty premiums would be hashed out among the compliance folks way down the food chain from the CEOs. But these executives have been watching closely, and they’re disappointed that the states have yet to achieve a harmonious surplus lines regulatory regime. They do, however, remain optimistic, as do I, that the ultimate promise of a single home-state rule will be fulfilled.

I heard fear and angst and foreboding at the Broadmoor this year. I also heard stories of firms thriving and looking to do even better. Hyatt Brown always has a reassuring way of summing up things, especially when a conversation ends with everyone totally confused. Says the chairman of Brown & Brown: “Oh well, it’ll all work out.” 

Joel Wood Senior Vice President, Government Affairs, The Council Read More

More in P&C

Lifestyles of the Rich and Risky
P&C Lifestyles of the Rich and Risky
Affluent insurance customers may not be protecting themselves against increasing...
P&C Farm Bill Idles
Congress will need to overcome election-year paralysis to finally vote on the fi...
Premium Increases Slowed But Challenging Conditions Remain
P&C Premium Increases Slowed But Challenging Conditions Remain
The Council’s Commercial P/C Market Index for Q4 is here.