The Entire Industry Has A Stake In Regaining Credibility With Congress

In the aftermath of Sept. 11, the property-casualty segment of the insurance industry has been in the spotlight, both because of the enormousness of its losses and because it is seeking a backup reinsurance arrangement from the federal government for future losses that may arise from terrorist activities.

The life insurance industry has had a much lower post-Sept. 11 profile, but its proposal for Congress to establish a commission to see if a backup might be necessary for life insurers after any future terrorist event has drawn little, if any, interest on Capitol Hill.

Once all the activity surrounding terrorism reinsurance legislation subsides, the industry might do well to focus on another issue; namely, its credibility problem both on the Hill and with the Bush administration.

It doesn’t help the life insurance business that for most people “insurance” means all insurance, with little or no differentiation between the life and p-c segments. Credibility problems on one side invariably paint the other side with the same brush, and this is true even in Congress.

That is why the life business needs to pay attention to how any proposal to aid the p-c business fares in Congress. So far, the reaction is not encouraging.

The consensus proposal developed by the insurance industry to create a private mutual reinsurance pool backed by the U.S. Treasury as the “reinsurer of last resort” was dismissed out-of-hand, and on a bipartisan basis, both at the Treasury Department and by the relevant Congressional committees.

The widespread view seems to be that the industry is either exaggerating the risk or simply trying to dump its potential losses on taxpayers.

The industry needs to ask itself why it is treated with such suspicion among the nation’s lawmakers.

Consider some recent comments from members of Congress and their staffs. Sen. Bill Nelson, D-Fla., who was his state’s insurance commissioner in the aftermath of Hurricane Andrew, said the industry has a history of trying to dump its losses on the taxpayers when possible.

Sen. Phil Gramm, R-Texas, said the industry’s proposal to create a reinsurance “monopoly” backed by the federal government is “alien to my thinking.”

Robert Gordon, senior counsel of the Republican-led House Financial Services Committee, said the industry has not made its case on the extent of the terrorism reinsurance crisis.

There have been a lot of insurance crises before, he said. People go to Congress and say “the sky is falling,” Gordon noted, but the market always comes back.

These comments reflect something less than full trust in the representations of the industry.

In all fairness, the industry had an obligation to bring the potential of market disruptions to the attention of the government following the Sept. 11 attack.

Moreover, it did a good job of demonstrating that the potential is real. Everyone quoted above agrees that something needs to be done to stabilize the reinsurance market, and that the government will have to provide substantial financial backing in the event of a major incident.

But when Congress and the White House began considering a specific solution, the consensus industry plan that was meticulously crafted following weeks of grinding negotiations among different insurance interest groups was not even given a full hearing.

This is not to suggest that the industry proposal is wrong. Indeed, it may well be more workable than the arrangement currently being considered.

But the point is that the plan is perceived–whether fairly or unfairly–as the industry simply trying to shift its losses to taxpayers, and that this is something it does all the time.

Once the dust settles on a reinsurance proposal, the industry needs to ask what it must do to regain the trust of the nation’s lawmakers.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 5, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


Copyright 2001 by The National Underwriter Company. All rights reserved. Contact Webmaster