Sen. Trent Lott pulled an interesting gambit this week during a hearing of the Senate Commerce Committee, trying to drive a wedge in the insurance industry lobby on his call to revoke McCarran-Ferguson's limited antitrust exemption by offering small carriers a “safe harbor” to allow them to keep sharing data. Will it work?
Our Washington office reported (click here for the full story) that Sen. Lott accused major insurers of hiding behind small carriers to protect their antitrust immunity. He graciously proposed making concerns over how small companies could survive such a radical development a non-issue.
The Mississippi Republican–who has an axe to grind with insurers after his own Hurricane Katrina claim was denied under the standard flood exclusion–failed to detail how he would define “small” insurer. He mentioned something about a $2 billion ceiling, but it's not clear whether that means exposure, policyholder surplus, reserves or some other factor. He probably doesn't know himself right now.
The more important question is whether this ploy will do the trick. Would small insurers raise the white flag and surrender to those attacking the exemption if they were somehow protected in a post-McCarran world? I doubt it, although if this movement gains momentum, many companies would probably welcome the concession on Sen. Lott's part.
Another interesting development this week came at a separate hearing of the Senate Banking Committee. Edward Lazear, who chairs the Council of Economic Advisors, testified that President Bush opposes legislation to create a new federal program to backstop catastrophe insurance, and rejects calls to expand National Flood Insurance Program coverage.
Both proposals were longshots to begin with, but without White House support, they're doomed for sure.
National catastrophe risk insurance would displace private insurance and undermine the economic incentives to mitigate risk, according to Mr. Lazear. It would force all taxpayers nationwide to subsidize insurance rates for the benefit of a relatively small group of people in high-risk areas. This would be both costly and unfair to taxpayers.
So much for that idea.
Meanwhile, the most probable outcome of this debate was signalled by Sen. Chris Dodd, the Democratic presidential candidate and chairman of the Senate Banking Committee, who comes from one of the country's insurance capitals–Connecticut.
In Congress, when in doubt, you disguise talk for action by forming a committee, task force, study group or some other entity to sort out options and stall for time. Catastrophe insurance is no exception.
I believe we ought to establish a short-term commission of insurance experts and other leaders to make recommendations to Congress in short order, before going forward with any particular proposal, Sen. Dodd proposed.
I still doubt Congress will do anything of substance on insurance this year, outside of renewing the expiring Terrorism Risk Insurance Act in some form. Federal regulation, repealing McCarran-Ferguson, or dramatically altering the way we deal with catastrophe coverage won't make the cut.
Action next year–in the middle of what promises to be one of the wildest election campaigns ever, with control of the White House, Congress and the political agenda at stake–is even less likely on all but the most essential pieces of legislation. Insurance reform ain't in that category.
What do you folks think?
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