GRAPEVINE, TEXAS–Measures that could increase insurers' lawsuit liability and cut into their bottom lines surfaced in statehouses across the country as Democrats took control in 2007, an official with the National Association of Mutual Insurance Companies said.

Among the more significant issues resurfacing, said NAMIC vice president of state and regulatory affairs Neil Alldredge, is third-party liability. These bills, he explained, make it easier for claimants to allege “bad faith” and file suit against their insurers in disputes as well as to seek additional damages.

Maryland enacted a “really bad” bill on the issue for the industry, he said, and Minnesota lawmakers were engaged in a “very protracted, lengthy debate” before a bill there ultimately failed on the last day of the state legislative session. “It was a real fistfight,” he said, adding that the measure would likely be an issue in next year's session as well.

Washington State also enacted a third-party bad faith law, he said, and the industry is currently involved in a referendum campaign to overturn the law. Mr. Alldredge said NAMIC is participating in that campaign, and while he is “optimistic” the effort will be successful, “it may be too soon to tell.”

The issue is important, he said, because third-party liability laws come with “real bottom line costs” for insurers, and ultimately for consumers. Claims costs after these laws are enacted “just go up,” and third-party bad faith claims become a staple of litigation. “They are part of every lawsuit, whether it's merited or not,” he said.

Another issue that continues to resurface in statehouses, he said, is credit scoring. However, Mr. Alldredge said he believes the industry has “probably crossed the high water mark” and will likely not see as many bills filed on the issue.

Numerous studies, most recently by the Federal Trade Commission, have shown the effectiveness of credit-based scoring to accurately gauge a consumer's risk, he said, and have contributed to the settling of the issue.

Another major area for insurers in the states involve catastrophes, and Mr. Alldredge spoke of two states that serve as examples of what can be done and what shouldn't be done. The key, he said, is that states should focus on improving their markets and increasing competition to help consumers.

Florida lawmakers, he said, can be seen as an example of “everything a state can do wrong.” Lawmakers there have enacted legislation allowing the state's insurer of last resort, Citizens, to compete with the private market and for the state's catastrophe pool to offer reinsurance.

Both of these entities are ultimately underwritten by the state's taxpayers. Mr. Alldredge proposed that the state's actions would seem to violate a basic tenet of insurance in that they would be concentrating risk in one area. “That's precisely what they've done,” he said.

At the other end of the spectrum, he said, is Louisiana, which has faced significant difficulties in its property market since Hurricane Katrina struck two years ago. Rather than trying to impose conditions on insurers, he said, Louisiana lawmakers have instead opted to try and attract companies to the market through incentives and greater freedom on rate setting.

The state has enacted legislation that would provide financial incentives to companies to enter the market by matching the capacity they dedicate to Louisiana up to $10 million if they write a certain percentage of their business in the state for properties south of Interstate I-10 and stay in the market for at least three years.

Additionally, he said, lawmakers abolished the state rating commission. The state insurance department had enacted a “flex rating” system giving insurers greater freedom, but the removal of the rating commission is a significant step toward providing companies real flexibility on rates. “Their flex system is really a flex system now,” he said.