HR 3424, known as the Reinsurance Tax Bill or the Neal Bill (after sponsor Richard E. Neal (D-MA)), is being debated by the U.S. House of Representatives Ways and Means Committee.   This legislation, aimed at transactions between U.S. insurers and their related foreign entities, would restrict the amount that a property & casualty insurance company may deduct for premiums paid for reinsurance.

Proponents of the legislation claim that allowing these deductions creates a “tax loophole” as those who write coverage in the U.S. are allowed to deduct the amounts they pay to reinsurers, mainly in Bermuda.  Supporters claim that closing this loophole will recapture an estimated $17 billion of revenue for the U.S. Treasury.

Detractors charge that taking away the reinsurance premium deduction is discriminatory and would raise reinsurance rates charged to U.S. companies, and ultimately require U.S. consumers to pay more for their insurance.  They claim that home insurance costs would increase $266 million for Floridians, $112 million for Texans, and $28 million for Louisiana residents.

Tell us what you think. Should this tax loophole be closed? Left open but modified? Left as it is?

A study by Gartner Research published in a recent issue of National Underwriter magazine analyzes the 10 technologies most likely to have a significant impact on property and casualty insurance.  Those 10 items are:

• Modern Policy and Claims Management Systems
• Web Service and Service-Oriented Architecture (SOA) Tools
• Business Intelligence and Analytics
• Predictive Modeling Tools
• Advanced Fraud Detection Solutions
• Web 2.0 and Social Networking Technology
• Product Development and Configuration Solutions
• Business Process Management (BPM) Solutions, including Workflow and Rule Engines
• Portal and Internet Technologies
• Mobile Devices/Technologies

Which of these do you think will be of the most value to the property and casualty insurance industry? What plans do you have to implement new technologies (these or others)? Let us know.

On the cusp of summer, as forecasters predict an active hurricane season, it is timely to compare and contrast the property and casualty insurance market in two states that often bear the brunt of severe tropical weather activity, Louisiana and Florida. 

A recent article from Insurance News Net paints a picture of the upbeat forecast for the insurance market in Louisiana stemming from legislation passed in 2007 aimed at attracting new insurers and decreasing the reliance on the state’s insurer of last resort.

Contrasting that, SNL is reporting that an increase in insolvencies in the Florida insurance marketplace, potential rate declines, and an uncertain political and regulatory situation are scaring the insurance industry in the Sunshine State.  And that is in addition to the possible increase in severe weather this hurricane season.

In both states, the current economic situation in has created a surge in the stress related to employment and home values, which has led to a rapid increase in the frequency and size of non-catastrophe type losses since the end of 2006.  This erodes profit from insurers in these non-hurricane years when they should be earning large underwriting gains to finance future storms.

What are your thoughts on the insurance industry in Louisiana and Florida?  Does Florida need to take a page from the Louisiana play book to bolster their insurance industry? Let us know.

National Underwriter editor-in-chief Sam Friedman’s recent editorial suggests that part of the blame for the recent oil spill in the Gulf of Mexico lies on the shoulders of risk managers at BP.  Mr. Friedman suggests that loss prevention measures were not implemented as they should have been, and that future drilling for oil in sensitive areas requires better risk management.

What role, and how much authority, should risk managers play in planning for and preventing such occurrences? Let us know.

M&A’s Mark Brannon recently commented in Florida Underwriter on the potential impact of SB  2044. Mark indicated that SB 2044 “provides some changes on how mitigation discounts can be applied” but he expressed doubt as to how many insurance companies will be able to provide an adequate demonstration to support a rate offset at this time.  The full article is available here.

What are your thoughts on SB 2044?  How should Governor Charlie Crist act on the bill? Let us know.

On March 22, 2010 the Georgia Supreme Court, in Atlanta Oculoplastic Surgery v. Nestlehutt, struck down as unconstitutional Georgia’s statutory limitation on non-economic damages in medical malpractice actions.     Georgia had adopted a cap of $350,000 on non-economic damages in any action (including wrongful death) for medical malpractice cases as part of its 2005 tort reform statute. (S.B. 3).   

The 2005 bill enacted a number of measures intended to reduce both the incidence of and decrease the cost of litigation.  In addition to the $350,000 cap on non-economic damages, the bill also included increased standards of proof for certain medical malpractice claims, and a loser-pays offer of judgment rule.

The Court upheld the ruling of the trial court, that the statute was unconstitutional in light of Georgia’s constitutional provision that “[t]he right to a trial by jury shall remain inviolate.” (Ga. Const. of 1983, Art. I., Sec. 1, Par XI(a)).   The Court’s opinion, which was unanimous, looked to prior Georgia cases intepreting Georgia’s unique “right to trial” provision, finding that they prohibited statutory limitations on the right to trial in cases where the common law had permitted a plaintiff to have a trial.  The Court found that a cause of action for medical malpractice was well-established prior to the adoption of Georgia’s Constitution and was, therefore, a right that could not be limited by statute.

Earlier in the month, the Georgia Supreme Court upheld two provisions of the state’s 2005 tort reform statute.  In Smith v. Baptiste the court upheld an offer of judgment rule (codified at O.C.G.A. 9-11-68) that allows a defendant in a tort case to ’shift’ its attorneys fees to the plaintiff if the plaintiff refuses to accept an offer of settlement and ultimately fails to recover more than the amount offered.    And in Gliemmo v. Cousineau the court upheld the Georgia statute’s limitation of liability for emergency room doctors which limits liability only to claims resulting from “gross negligence only as shown by clear and convincing evidence.”

Merlinos & Associates can help you assess the effects of tort reform rulings in your business, including reserving and pricing issues.  See our Areas of Expertise for more details.

Fortune Magazine’s March 10^th issue contains its annual list of most admired companies.  Berkshire Hathaway finished 3^rd overall (behind Apple and Google) and took the top spot in the property and casualty insurance category.  The entire property and casualty insurance list:

National Underwriter is reporting that legislation will be introduced in the U.S. House of Representative that would allow risk retention groups to sell commercial property insurance.  This legislation would also give the Treasury Department broad new powers to oversee the industry with authority to review disputes between risk retention groups and regulators in states where they are not domiciled and offer interpretations regarding the Risk Retention Act.

Currently, under the 1986 Risk Retention Act, risk retention groups are limited to offering liability insurance with the exception of workers’ compensation.

A similar proposal was introduced in 2008.  Supporters of this proposal include the Self-Insurance Institute of America, the National Risk Retention Association, and the Risk and Insurance Management Society.

Let us know what you think of this idea.

The U.S. House of Representatives passed the Health Insurance Industry Fair Compensation Act by a margin of 406-19.  This act would remove the antitrust exemption currently provided to the health insurance industry under the McCarran-Ferguson Act of 1945.  However, the version of the act passed by the House allows the medical professional liability insurance industry to continue to operate under the McCarran-Ferguson Act.

Industry groups American Insurance Association and Property Casualty Insurers of America issued a joint statement saying, in part:

“We are pleased that lawmakers acknowledged that medical professional liability insurance is not a health insurance product and was not included in the final bill. It’s also a testament to the industry’s efforts to educate lawmakers about the competition in the property-casualty sector and the regulatory tools in place that protect consumers and promote competition in the marketplace.”

In order to become law, the act needs to be approved by the Senate where supporters will be seeking the 60 votes needed to avoid possible filibuster by those who do not favor the legislation.

Let us know what you think of the Health Insurance Industry Fair Compensation Act.

Democrats in the U.S. House of Representatives are discussing legislation that would repeal the anti-trust exemptions currently afforded to health insurance companies.  Ten insurance groups sent a letter to the House last Friday asking the lawmakers to say no to this proposed legislation.  Of particular note to the property and casualty industry is their assertion that medical liability insurance should not be in the discussion about removing the anti-trust exemption from the health insurance industry because medical malpractice insurance is a property and casualty product, not a health insurance product.

Let us know what you think about this proposed legislation and the inclusion of medical liability insurance in it.