A Hair's Breadth
We are this close—just one
misstep away from Congress turning on us. Pray for good weather
and good karma in 2008.
At President Bush’s final State of the Union address,
Congress was implored to act on scores of critical issues in a
time-tested, grand, role-playing exercise in prime time. The
truth, of course, is that not much ever gets done in a
presidential election year. Getting not much done is often a
good thing. Considering the bad congressional karma for the
insurance industry post-Katrina, lots of my colleagues will
make their bonus this year just because it could be an
uneventful legislative year in Washington.
But let’s consider the worst-case scenario. If there
is a major natural catastrophe, particularly a hurricane, this
season, the insurance industry could take another major hit in
public perception, regardless of whether the industry deserves
it. And if so, the Congress could lash back. I think our
political capital is strong enough to where it won’t
become a lynch mob, but beating back significant consequences
wouldn’t be a walk in the park, either.
One consequence could be action on the McCarran-Ferguson
Act. The effort to repeal the industry’s antitrust
exemption in the past year has involved a confluence of
powerful senators with grievances against the industry. Sen.
Patrick Leahy, chairman of the Senate Judiciary Committee, has
been mad at the industry for years on the subject of medical
malpractice. The committee’s ranking Republican, Sen.
Arlen Specter, is angry that major property-casualty insurers
spiked his proposed asbestos resolution fund a couple years
back. Majority Leader Harry Reid (while very good to the
industry on issues such as terrorism coverage) is a trial
lawyer from Clark County, Nev., just named one of the American
Tort Reform Association’s top “judicial hellholes
of 2007.” Enough said.
The war whoops of 2007 were led by Sen. Trent Lott, whose
Katrina woes flipped him from one of the industry’s most
stalwart champions to its most dreaded enemy. At the end of the
year, he retired to become a high-rolling lobbyist. The
temperament of his replacement, Rep. Roger Wicker, is much more
compatible with mild-mannered Mississippi Sen. Thad Cochran,
even though Wicker used to work for Lott. Insurance lobbyists
from all sides breathed a sigh of relief when Lott departed the
Senate, though my own feelings were mixed, as I remembered all
the good he’d done for the business community.
If the industry gets hosed due to performance in a major
catastrophe, it wouldn’t take much effort for Leahy to
get the Judiciary Committee to pass the McCarran repeal, and
the 60 votes needed to pass the Senate floor could be
But the range of potential actions could go much further.
Already, the House has passed a bill that would allow the
federal flood program to include wind coverage. Council members
agree that the wind/water issue has to be resolved and there
must be better coordination between federal and private
coverage, but CIAB has not gone so far as to endorse the major
expansion of federal involvement the House bill would
Sens. Hillary Clinton and Charles Schumer already support
the effort. Also, the House has passed the
“Klein/Mahoney” proposal for a
“voluntary” national catastrophe program, wherein
the feds would back up states that pool their cat funds
together. A critical mass of the industry dislikes the idea
under the belief that the focus should be on land use,
development and building codes and that private reinsurance is
available for cat coverage, albeit at rates that many coastal
dwellers have difficulty swallowing. Like the wind/flood bill,
it wouldn’t take much for Klein/Mahoney to get traction
in the Senate, with potentially lots more add-ons that the
industry wouldn’t like.
Repercussions could also be felt on the broader regulatory
reform agenda. Most enlightened insurance executives support an
optional federal insurance regulatory scheme designed after the
successful dual banking system. But a crisis in the industry
could result in a layer of federal oversight junked on top of
the fragmented state-by-state regime—the worst of both
I’m paid to contemplate the ugliest scenarios, and I
tend to think that, even if there were a major catastrophic
event, lousy legislation wouldn’t come to pass. The most
fascinating and difficult-to-envision scenario, though, is the
hurricane that nails a major metropolis in Florida. As long as
the wind doesn’t blow, Florida Gov. Charlie Crist is a
hero, a borderline demagogue of Lott-like proportions, who is
sticking it to the industry by socializing the marketplace.
When Florida Citizens, already one of the largest property
carriers in the world, goes belly up—who’s going to
pick up the tab?
A spokesman for the Property Casualty Insurers Association
of America claims Florida’s actions are “leading
the property insurance market in Florida down a path of
deterioration.” Allowing Citizens to expand, the
spokesman said, has caused it “to become a giant,
lumbering beast that will threaten to financially ruin every
man, woman and child in the state of Florida.” That may
be an overstatement, but the consequences of “the big
one” in Florida are enormous, and it’s
anybody’s guess as to the federal government’s
response to bailing out the state government that has taken on
such gigantic risk. In any event, it wouldn’t be a pretty
Wood is the Council’s senior vp of Government Affairs.