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Walgren thinks some federal regulation is likely.

Some degree of federal regulation of the insurance industry appears likely, according to Rep. Doug Walgren, D-PA.

Although admitting that he is new to the insurance legislative arena, Rep. Walgren also offered other insights into key industry issues being debated in Congress at a meeting of the RIMS Pittsburgh Chapter last month. Rep. Walgren, who chairs the House Commerce, Consumer Protection and Competitiveness Subcommittee, spoke before a crowd of 65 risk managers, brokers and insurers at a forum sponsored by American International Group before rushing back to the Capitol for a last-minute vote.

"It is evident that public dissatisfaction with the insurance industry is growing, and confidence in it is eroding," he said during introductory remarks referring to rate rollbacks in California and Pennsylvania. "Increasingly, consumers are expressing their displeasure with a system they believe provides minimal coverage at high cost."

He then briefly outlined the findings of the House Oversight and Investigations Subcommittee, chaired by Rep. John Dingell, D-MI, who also heads the House Energy and Commerce Committee. The subcommittee, in a report titled "Failed Promises: Insurance Company Insolvencies," concluded that the industry's accounting and actuarial procedures are deficient, reliance on reinsurance is excessive, control of managing general agents is poor and the state system of regulating solvency is inadequate.

"We have yet to develop legislative recommendations to remedy the serious problems we identified and probably will not do so until our investigation is completed," said Rep. Walgren. However, among other things, he agreed that "we need more effective and efficient regulatory oversight."

In fact, he said that the prospects for changing the regulatory system to one in which the federal government participates is greater than ever. To support his view, Rep. Walgren pointed to the recent testimony by representatives from several insurance industry groups. The American Insurance Association, for one, is considering the establishment of federal minimum standards, among other possibilities. Likewise, the National Association of Casualty and Surety Agents has testified that a "federally sponsored system [may be necessary] to complement state efforts."

"Whether the industry's concern about solvency issues stems from exponential increases in guaranty fund assessments or a desire to restore public confidence in the insurance industry or both is irrelevant. The fact is the industry recognizes that the reckless and fraudulent conduct of a few bad actors must be stopped and that both the industry and the public will benefit from a more effective regulatory system," he said.

However, Rep. Walgren does not think that doing away with the current system is necessary. "I agree that the NAIC [National Association of Insurance Commissioners] has made diligent efforts to address many of the problems we have talked about today," he said. Those efforts include adopting model laws and regulatory standards, initiating a formal certification program for regulators and developing a solvency policing agenda for 1990.

"But I question whether state regulation alone and the recommendations of an organization that must rely on voluntary compliance are sufficient," he said. "I do not share NAIC's 'confidence that necessary reforms can be accomplished within the existing state regulatory framework."'

Rep. Walgren also spoke about the "anti-competitive" activities in which insurers engage due to their anti-trust law exemptions granted by the McCarran-Ferguson Act, which also established state regulation of the industry. The House Judiciary Committee approved a bill which would in states with poor anti-competition regulation prohibit price-fixing, monopolization, territorial allocation and illegal tying among insurers, but it has failed to clear the Rules Committee for a floor vote. "But that may happen before Congress adjourns," predicted Rep. Walgren. "However, prospects for passage this year are slight since there has been virtually no activity on it in the Senate. The measure will no doubt be reintroduced next year."

Risk Retention

The congressman also addressed proposed changes to the Risk Retention Act of 1981 which would set minimum capital and surplus requirements for purchasing groups to assure their solvency. "As we look to improve the act, we must strike a balance between the goals of protecting against insolvency and providing viable alternatives for commercial liability consumers," said Rep. Walgren. He added that the proposed amendments are not likely to become law this year, but most assuredly, similar legislation will be offered next year."

Finally, Rep. Walgren fielded questions from the audience. On the prospects for product liability reform, he explained that his subcommittee under his predecessor, New Jersey Gov. James Florio, introduced a bill two years ago without success. "It is so controversial that our committee now, since we went through it and it went nowhere, takes the position that we are going to sit there until the Judiciary Committee and Senate act," he added.

On his and his colleagues' thoughts on California's Proposition 103, he said: "How it will play itself out in mandating rollbacks we don't have any experience with. So I don't know that we take it as a lesson that you can engage in simply rolling back prices regardless of underlying costs."
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Title Annotation:Doug Walgren on insurance industry, Risk and Insurance Management Society Conference
Author:Schussel, Mark L.
Publication:Risk Management
Date:Nov 1, 1990
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