Tag Archives: Regulation

Lloyd’s: Global Business Leaders Worry about Taxes

High taxation has become the number one threat to global business, soaring up the rankings from 13th to 1st place in the last two years, according to the third Lloyd’s Risk Index.

Other top risks concerning more than 500 of the world’s most senior business leaders in 2013 are loss of customers/cancelled orders, cyber risk, increased material costs and excessively strict regulation.

Interestingly, the survey found that U.S. businesses feel even more unprepared to deal with the risk of high taxation than their European counterparts.

While both regions put high taxation as their number one risk, U.S. respondents rank their preparedness at 37 out of 50, compared to European businesses at 21 out of 50.

But does the increase in volume on the subject of corporate taxation reflect reality? Not necessarily, Lloyd’s says.

It cites data showing that corporate taxes have actually declined or remained static in the past few years, despite the financial problems of most major economies.

Still, personal tax rates in some economies have risen, which particularly affect global businesses competing for international talent, it adds. Indirect taxes are also on the increase.

Lloyd’s says:

The reality for businesses appears to be that government ambiguity about business taxes, whether about extending jurisdictions, amending legislation or changing rates, may actually be more damaging for business confidence than the reality.†

In a  press release  Lloyd’s chief executive Richard Ward warns that focusing on near-term issues at the expense of longer-term strategic decision making can leave organizations over-exposed to future business challenges:

With business tax in the spotlight and rising up the political agenda, executives are understandably concerned. Yet the danger is that an emphasis on near-term, operational issues comes at the expense of significant, strategic decisions that have previously exercised business leaders.†

First published in 2009, the Lloyd’s Risk Index is run in conjunction with Ipsos MORI.

Regulating Insurance: The Grades Are In

Many factors, including demographics, economic conditions and the litigation landscape, can affect an insurer’s decision to operate in or to continue doing business in a particular state. The regulatory environment is another important consideration for insurers.

According to the 2012 Insurance Regulation Report Card from non-profit think tank R Street Institute, Vermont, Illinois and Ohio had the best property/casualty insurance regulatory environments in the U.S. this year, receiving ‘A+’ grades.

At the other end of the scale, Florida was the only state to receive a failing grade, falling more than two standard deviations below the mean (the mean was -3.1).

Other states falling more than one standard deviation below the mean include Alaska, Michigan, New York, California, Massachusetts and Texas.

Interestingly enough the best state, Vermont, only scored 26 out of a maximum possible score of 55.

R Street based its assessment of states on 14 objective metrics, including:

– the concentration of their home and auto insurance markets and relative size of their residual markets

– the effectiveness of state solvency and fraud regulation

– the transparency and politicization of insurance regulation

– the tax and fee burdens placed on insurance markets and the proportion of fees used to support insurance regulation

– the relative freedom granted to insurers to set risk-based rates, including through the use of credit and territorial information

A press release cites the report’s author R.J. Lehmann saying:

Overall, in 2011 and early 2012, we saw continued modest trends toward greater consumer and business freedom in the homeowners and automobile insurance markets, as well as real efforts in some states to scale back, or otherwise place on more sound financial footing, residual insurance markets and state-run insurance entities.†

Those are positive trends, and we hope this report card encourages other states to move forward in that direction over the next year.†

Stay tuned.

P/C Insurance: No Systemic Risk To Financial System

Yesterday’s U.S. House of Representatives’ hearing on Congressional ‘Oversight of the Financial Stability Oversight Council (FSOC)’ has made for a number of headlines.

Check out coverage of the hearing in the Wall Street Journal, the  Hill’s Finance and Economy  blog, a Reuters report via Insurance Journal and PropertyCasualty360.com.

A new Insurance Information Institute (I.I.I.) white paper provides insights on the property/casualty insurance industry and systemic risk.

In the paper co-authors Dr. Robert Hartwig, president of the I.I.I. and an economist, and Dr. Steven Weisbart, senior vice president and chief economist for the I.I.I. remind us that not one property/casualty insurer failed as a result of the financial crisis or the ensuing “Great Recession†.

As financial regulators consider criteria for determining which financial institutions might be systemically risky, the authors note that P/C insurance is fundamentally different from banking, and poses no systemic risk to the financial system.

Inappropriate inclusion of P/C insurers could cause harm not only to insurers, but to consumers and the efficacy of financial institution regulation in general, the paper concludes.

Check out the  I.I.I.  issues update  on regulation modernization.

Geneva Association: Key Industry Issues For 2011

Regulation and financial stability will be key issues for the insurance industry in 2011, according to international insurance think tank, The Geneva Association.

Hat tip to Business Insurance for more on this story.

Patrick Liedtke, secretary general and managing director of the Geneva Association, observed that the direction of international insurance regulation is going to be critical for the industry this year.

Major regional projects such as Solvency II, which have gained reference status even beyond Europe, and global projects such as International Financial Reporting Standards (IFRS) reforms and International Association of Insurance Supervisors (IAIS) initiatives will see key decisions in 2011.†

Getting the next wave of regulation right is critically important, not only for the industry, but for continued economic growth and development, he said.

On financial stability, Liedtke noted that while systemic threats do not emanate from insurance activities there are a number of issues that remain poorly understood or simply have not been discussed but where important decisions will be taken by governments in 2011.

The key is to ensure that regulatory imprecision or over-stretch do not hamstring well-functioning industry and damage societal interests.†

Two longer term issues that are also of importance are climate change and demographics.

Climate change presents insurers with both long and far-reaching challenges and also opportunities. The shift towards longer life expectancy and ageing populations will change the way societies view risks.

Check out  I.I.I. facts and stats on U.S. demographics and information on climate change and insurance.

Bumper To Bumper

This just in from the Insurance Institute for Highway Safety (IIHS): bumpers on cars and SUVs don’t line up leading to huge repair bills in what should be minor collisions in stop-and-go traffic.

The Institute’s crash test results show that in fender-benders with SUVs, cars often end up with excessive damage to hoods, engine cooling systems, fenders, bumper covers, and safety equipment like lights. SUVs don’t always come out unscathed either, often needing extensive work.

Hat tip to the New York Times Wheels blog for more on this story.

The Institute conducted 10mph front-into-rear crash tests involving seven pairs of 2010-11 models, each composed of a small car and small SUV from the same automaker.

In the tests, an SUV going 10mph struck the back of its paired car, and then the test was reversed with the car striking the back of its paired SUV.

Damage repair costs in the tests varied widely, but ran into the thousands of dollars, even for the best performers.

Total damage estimates ranged from $2,995 to $7,444 in the SUV into car tests, and from $3,601 to $9,867 in the car into SUV tests. It’s worth noting that the SUV didn’t always have the lower damage estimate either.

In the words of Joe Nolan, the Institute’s chief administrative officer:

“In the real world that money comes straight out of consumers’ wallets through deductibles and insurance premiums.†

So what’s the solution?

According to the Institute, regulating SUV bumpers would ease the burden.

While bumpers on cars are designed to match up with each other in collisions (a federal standard requires all cars to have bumpers that protect within a zone of 16 to 20 inches from the ground), a long-standing gap in federal regulations exempts SUVs from the same rules.

The Institute is calling on regulators to require bumpers on SUVs and pickups to match up in the same way as cars, shielding both from costly damage.

Check out I.I.I. facts and stats on auto insurance and info on auto crashes.

Election Day Impact On Insurance

As millions of Americans head to the polls and wait to see how the nation’s political landscape may or may not change after today’s mid-term elections,  commentators say  the results could have significant implications for insurance.

A.M. Best’s Election News 2010 website reports that voters nationwide could overhaul the insurance landscape:

Because of term limits and decisions not to run, about half of the country’s governors will be new. That could bring a tremendous change in the U.S. regulatory climate and will surely mean a great number of state insurance regulatory offices will soon be occupied by new commissioners.”

On the federal level, A.M. Best notes that key congressional races with insurance industry implications include those of Rep. Paul Kanjorski, D-PA; Rep. Earl Pomeroy, D-ND; Rep. Richard Neal, D-MA; and Rep. Walt Minnick, D-ID.

Both A.M. Best and Insurance Journal report that insurance commissioners will be elected in four states. Races will be determined in Georgia, Oklahoma and California, while in Kansas Sandy Praeger faces no opposition after prevailing in the August 3 Republican primary and will retain the commissioner’s post.

Results of governor races in two key insurance markets – California and Florida – will be keenly watched by the industry. Florida will also elect a new chief financial officer to fill the post vacated by Alex Sink, the state’s Democratic candidate for governor.

Follow the latest insurance-related election news and state-by-state coverage of the results on A.M. Best’s Election News 2010 website.

Leaner Budgets All Round

Dire fiscal conditions have forced many states to cut back programs, increase taxes and put a freeze on hiring in 2010 and these actions continue to impact public infrastructure spending and related insurance exposures.

Insurance regulators are also affected.

In the wake of landmark financial services reform signed into law this week that retains the state-based regulatory framework for insurance, SNL Financial reports that many state governments continue to cut back on the resources those regulators have to do their jobs.

In  a timely analysis of data reported in the NAIC’s recently released 2009 Insurance Department Resources Report, SNL reports:

Projections offered by insurance regulators from the 50 U.S. states, the District of Columbia and the Commonwealth of Puerto Rico show their departments expect to spend a combined $1.77 billion in 2011, or 0.7% less than the roughly $1.79 billion they are spending in 2010. The report projects budget cuts for 20 state insurance departments in 2011, while budgets were left flat in five others.

That comes after 25 states reported cuts in their 2010 budgets from 2009 levels and seven others kept insurance department budget flats.†

SNL observes that the budget cuts come despite increased demands on insurance regulators from both the financial crisis and new healthcare reforms.

According to SNL’s analysis, regulators in 14 states – including such major insurance markets as Michigan, Pennsylvania, Georgia and New Jersey – have smaller budgets in 2010 than they did in 2006, before the start of the financial crisis.

Even where state insurance departments have not yet cut budgets, they have already been cutting staff.

SNL says NAIC data shows staffing by state insurance departments fell for the third straight year in 2009.

The state suffering the deepest cuts was hurricane-prone Florida with its staff down 64.1 percent to 1,010.5 positions in 2009 from 2,813 in 2006. Other states seeing big reductions in staffing levels during the past three years include Pennsylvania and Arizona, SNL says.

Check out the I.I.I. online publication “A Firm Foundation† to see the myriad ways in which insurers support state and national economies.

Financial Services Reform: Just the Beginning

President Obama is expected to sign landmark financial services reform legislation into law this week after the U.S. Senate passed the bill by a 60-39 vote last Thursday.

Insurance Journal  and National Underwriter have informative pieces on how the Dodd-Frank financial reform package  affects the insurance industry and surplus lines, including reactions from trade associations.

Over at the D&O Diary, Kevin LaCroix reminds us that while the 2,319-page bill is headed to the President’s desk, this is not the end, it’s the beginning.

A statement responding to passage of the bill from the American Insurance Association (AIA) explains why. Leigh Ann Pusey, president and CEO of the AIA, observes:

With some 250 new regulations to be implemented by 11 different federal agencies, the stage is now set for an intense rulemaking process that will be AIA’s top priority. As was the case during the legislative process, AIA’s focus will remain on identifying how the nature of insurance is different than that of the banking sector and emphasizing those unique differences with the appropriate rulemaking authorities.†

Something tells us to expect more stories on the impact of financial services reform on the insurance industry in the coming weeks.

The Financial Services Roundtable has a summary of the bill and a rulemaking chart here. Check out I.I.I. information on regulation modernization.

Financial Services Reform and Insurers

There are articles aplenty about the shape of landmark financial services reform agreed by House and Senate conference committees early Friday and what the impact will be on the insurance and reinsurance industry.

A good place to start is the Wall Street Journal which has a useful interactive showing what’s in the bill (H.R. 4173) for the government, for banks, for consumers and for investors.

An article on BestWire via insurancenewsnet.com speaks of optimism among property/casualty insurers that the final language in the bill recognizes that the p/c sector is not a factor in concerns over systemic risk and that it maintains the state guaranty fund system as the resolution authority for the sector.

On a not-so-positive note for the insurance sector, National Underwriter reports on how to offset the $19 billion cost of the bill a tax will be imposed on large financial institutions, including insurers, with more than $50 billion in assets. It quotes several insurance trade groups voicing concern over the levy.

Insurance and Financial Adviser observes that the bill retains most state-based regulation of insurance, even with the creation of a Federal Insurance Office. Under the provisions agreed, the Federal Insurance Office must first seek data from state insurance regulators before seeking information from insurance companies, it explains.

Business Insurance focuses on the aspects of the bill that address surplus lines modernization and streamlining of reinsurance regulation.

The bill is expected to be approved by both Houses of Congress this week and sent to President Obama for his signature before the July 4 Congressional recess, though several reports note that the death of Senator Robert Byrd (D-WV) could jeopardize this plan.

Check out the new I.I.I. policymakers Web site  for information on key issues affecting the insurance industry,  such as regulation modernization.

Financial Regulatory Reform Moves Closer

Last night’s 59 to 39 Senate vote in favor of financial regulatory reform is the most extensive overhaul of financial-sector regulation since the 1930s, according to the Wall Street Journal. It notes that the Senate bill  must now be reconciled with a similar bill passed by the House of Representatives last December, before it can be sent to President Obama to be signed into law.

In addition to a timeline of financial legislation, the WSJ article includes a useful summary of key parts of the Senate bill and where it differs from the House version. From the insurance industry’s perspective, the takeaways are as follows:

Check out I.I.I. information on regulation modernization.