TowerGroup Report Spells Out Need for Regulatory Reform for the Property-Casualty Industry

However, with relatively weak hurricane seasons and low catastrophe losses since the devastation of the major storms that struck in 2005, the sense of urgency for reform has faded, according to a new report from the TowerGroup- "2008 U.S. Insurance Regulatory Agenda: Will the Upcoming Elections Quell the Drive for Reform?"

Study author Karen Pauli, a senior analyst in the TowerGroup Insurance practice, writes  that the government and insurance industry must work together now to recapture the earlier momentum gained in 2005. The two must create programs that meet the needs of the public in case of extreme loss.

However, borders stand in the way of progress-both internal and international borders. The study contends that the fast-growing global insurance market presents major challenges for U.S. carriers. Complex and sometimes conflicting U.S. regulatory requirements slow down economic expansion for many carriers, while the varying regulations from state to state hinder innovation and speed to market for products created for U.S. clients.

To remedy these problems, TowerGroup believes that changes to the following four key regulatory items should be a priority this year for the government and p-c industry:

1. Overhaul the National Flood Insurance Program (NFIP) immediately. Remapping is key to establishing the eligibility of at-risk structures. This will take about five years to accomplish. Also, rates must become actuarially sound, and enforcement of requirements that property owners purchase flood insurance must happen.

2. Reject the national subsidization of local catastrophe exposure. Many parties are aligned against the creation of a national catastrophe fund; involving the voluntary, private international reinsurance market is a sensible alternative. However, TowerGroup believes the long-term solution to catastrophe management still comes down to the fundamentals of risk-based pricing and underwriting integrity.

3. Expand the scope of the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA). This is an economic imperative for both carriers and the public. TRIPRA will become a more reliable backstop if the program is extended for a period longer than seven years and if expanded protection for weapons of mass destruction is included.

4. Establish an Optional Federal Charter (OFC). TowerGroup concedes that this is unlikely to happen in an election year. Still, an OFC must be available if carriers are to compete globally. If not, carriers that conduct business in countries with less regulatory complexity will prevail over those that have operations in the United States.

TowerGroup believes that in order to successfully handle catastrophe management, carriers must be able to manage risk through the use of technologies such as predictive modeling, geolocation, and risk mapping. While it is imperative that catastrophe modeling be in place at all carriers, a percent of insurers today still lack this capability or do not apply it on an enterprise level. In addition to adopting these technologies, data integrity and data access are essential.