As Congressional hearings continue about the impacts of the recent Gulf oil spill, the National Law Journal via law.com reports that environmental law firm Earthjustice and New Orleans law firm Waltzer & Wiygul have filed a lawsuit in federal court on behalf of conservationists and fishermen against the U.S. Department of InteriorÃ¢â‚¬â„¢s Minerals Management Service (MMS).
According to the NLJ article, the suit Ã¢â‚¬“ Gulf Restoration Network and Sierra Club v. Salazar Ã¢â‚¬“ charges that the agency violated federal law by exempting oil companies that drill in the Gulf of Mexico from disclosing blowout and worst-case spill scenarios as well as plans for dealing with them before approving the companiesÃ¢â‚¬â„¢ offshore drilling plans.
For the BP Deepwater Horizon rig exploration plan, MMS had issued a notice to oil companies telling them that they didnÃ¢â‚¬â„¢t have to comply with those blowout and worst case oil spill rules, according to Earthjustice. In addition, it alleges that MMS failed to produce an analysis of potential environmental impacts in the event of a blow-out despite being required by law.
The legal challenge asks the court to invalidate the MMS practice of sending notices to oil companies informing them that they donÃ¢â‚¬â„¢t have to comply with the rules and to order review of existing offshore drilling plans that do not comply with existing rules.
A quote from Earthjustice attorney David Guest sums up the case thus:
This case is about lax regulation by the Minerals Management Service. It is actually easier to get a permit for an offshore oil well than for a hot dog stand.Ã¢â‚¬
U.S. President Barack Obama recently criticized what he described as a Ã¢â‚¬Å“cozy relationshipÃ¢â‚¬ between the oil and gas industry and the MMS and charged U.S. Interior Secretary Ken Salazar with reforming the agency. Salazar already has announced that MMS will be split into two, effectively separating its safety and environmental enforcement responsibilities from its leasing, permitting and revenue collection activities.
Check out an I.I.I. backgrounder on offshore energy facilities and insurance considerations.
The Wall Street JournalÃ¢â‚¬â„¢s Washington Wire blog, among many others, tips us off that President Barack Obama will be speaking at Cooper Union in New York City tomorrow on financial regulatory reform. The presidentÃ¢â‚¬â„¢s address comes on the same day that the Senate is expected to begin debate on the regulatory overhaul plan and according to White House press secretary Robert Gibbs the president Ã¢â‚¬Å“will call for swift actionÃ¢â‚¬ on the package. The Restoring American Financial Stability Act of 2010, which passed the Senate Banking Committee in March and was drafted by committee chairman Christopher Dodd (D-CT), has a number of implications for insurers, not all of them good, according to industry experts. The key takeaways are as follows: the establishment of an Office of National Insurance within the Treasury; the streamlining of regulation for surplus lines insurers; the establishment of a Financial Stability Oversight Council that would subject to Fed oversight any nonbank financial companies that pose risks to the financial stability of the United States; and the creation of a $50 billion resolution fund, financed by assessments on the largest financial firms, including insurers. The House passed its version of financial services regulatory reform last December. Insurance Information Institute (I.I.I.) president Dr. Robert HartwigÃ‚ has suggestedÃ‚ that subjecting insurers to bank style regulation would beÃ‚ counter-productive. Check out I.I.I. information on regulation modernization.
Introduction of the Restoring American Financial Stability Act of 2010 by Senate Banking Committee chairman Christopher Dodd (D-CT) yesterday has prompted a slew of headlines on financial services reform and the pros and cons of giving enhanced powers to the Federal Reserve Board. Apart from the establishment of an Office of National Insurance within the Treasury, there are a couple of key takeaways from the insurance industry perspective. On systemic risk: the proposed legislation would establish a Financial Stability Oversight Council that would subject to Fed oversight any nonbank financial companies that pose risksÃ‚ to the financial stability of the United States. The plan would also create a $50 billion fund, financed by assessments on the largest financial firms, including insurers. Check out the following articles in the New York Times, Business Insurance and Insurance Networking News for more on this story. The American Insurance Association issued the following statement, here,Ã‚ in response to the legislation. Check out I.I.I. information on regulation modernization.
ItÃ¢â‚¬â„¢s been quite a week for politics and it would be remiss of us to end it without addressing the Democratic partyÃ¢â‚¬â„¢s loss of a Senate seat in the election in Massachusetts and the impact on healthcare reform. A January 21 article in the Wall Street Journal by Janet Adamy and Naftali Bendavid reports that Congressional Democrats are working to scale down their healthcare bill to widen support and are focusing on increased regulation of health insurers. It cites House Speaker Nancy Pelosi saying Congress must prevent insurers from denying policies to people with pre-existing health conditions or dropping peopleÃ¢â‚¬â„¢s coverage once they become sick. Pelosi is also calling for a repeal of the industryÃ¢â‚¬â„¢s anti-trust exemption and for the imposition of new caps on health insurers that limit their profits. Both these provisions are part of health bills already passed by the House and Senate, according to the WSJ. Meanwhile over at Managed Care Matters blog, Joe Paduda takes a grim look at the prospects for healthcare reform in two aptly named posts. In An epitaph for health reform, Paduda opens: Ã¢â‚¬Å“Ten months of effort was blown away yesterday by an unprecedented electoral upset, a most unlikely end to health reform.Ã¢â‚¬ And in the second post, Why health reform is dead, Paduda concludes: Ã¢â‚¬Å“No, reform wonÃ¢â‚¬â„¢t happen this year, and isnÃ¢â‚¬â„¢t likely in 2011. What does this mean for you? Family insurance premiums of $30,000 in ten years.Ã¢â‚¬ Something to think about.
Debate on financial services reform gets underway in the House today. Increased oversight of systemic risk and the creation of a new federal agency to protect financial consumers are major components of the overhaul in the wake of the financial crisis. For insurers, a new federal insurance office that will collect information about the industry and advise on policy issues is in the pipeline. For more on this story check out a Reuters article by Kevin Drawbaugh. Yesterday PriceWaterhouseCoopers said in a new report that the insurance industry may not see a return to relative stability and certainty for a few years as it reacts to the effects of regulatory reform, increased government intervention and potential tax law changes in the aftermath of the financial crisis. Within five years, the industry landscape could look markedly different, and Americans may find their insurance policies underwritten by a handful of large, well-capitalized firms that can demonstrate financial strength and economies of scale, according to PWC. It said the most significant of nine key developments for the industry will likely be sweeping regulatory changes resulting from proposed legislation to reform health insurance and increased federal oversight of insurance and financial industries. I.I.I. info on regulation modernization is available here.
Debate on a bill creating a federal insurance office and other financial services reform legislation could begin in the House as early as next Wednesday, according to several media reports. Yesterday the House Financial Services Committee passed H.R. 2609, the Federal Insurance Office Act of 2009 by a voice vote. Following a number of revisions, the new federal office would not have any regulatory authority over the business of insurance and also would not be able to preempt state insurance laws governing rates, premiums, coverage requirements, antitrust laws, underwriting or sales practices. The office will collect information about the industry and advise on policy issues. Check out a December 2 Insurance Journal article for more on this story. Meanwhile, H.R. 3996, the Financial Stability Improvement ActÃ‚ givingÃ‚ the government authority to deal with troubled financial institutions, including insurers, also passed the House Financial Services Committee yesterday on a 31-27 vote. Check out more on this story in a December 2 National Underwriter article. I.I.I. background information on regulation modernization is available here.
As Congress continues to work on overhauling the regulatory system in response to the financial crisis, it was timely to hear a reformer from the past financial crisis speak today at a key meeting of actuaries. In a luncheon speech at the Casualty Actuarial Society (CAS) annual meeting in Boston, Senator Paul Sarbanes, former U.S. Senator and co-author of the Sarbanes-Oxley Act of 2002 (or SOX, as it is better known) made clear that he stands by the law that he helped craft. Senator Sarbanes noted that the latest financial crisis was a breakdown in risk management and regulatory oversight, neither of which SOX was designed to address. Ã¢â‚¬Å“This crisis was not a breakdown in financial reporting. In fact, the legislation (SOX) has helped us avoid a crisis involving both risk management and financial reporting,Ã¢â‚¬ he said, adding: Ã¢â‚¬Å“SOX never mandated against bad business judgments which are what we have seen take place.Ã¢â‚¬ At the same time, Senator Sarbanes addressed concerns over Section 404 under SOX which requires companies to assess the adequacy of internal controls. This provision has proved controversial because some businesses say the cost of compliance is far too great. Senator Sarbanes said he is not in favor of an amendment that would exempt small-cap companiesÃ‚ under $75 million from auditing requirements under SOX. Ã¢â‚¬Å“My strong view is that we should address the complaint about the cost, but every public company that gets listed on an exchange ought to have a certified system of internal financial controls.Ã¢â‚¬ There you have it Ã¢â‚¬“ directly from a reformer of the previous financial crisis. Check out further I.I.I. information on regulation modernization and insurance.
The rhetoric surrounding the insurance industryÃ¢â‚¬â„¢s limited exemption from federal antitrust laws that has been in place for 64 years under the McCarran-Ferguson Act is reaching fever pitch. Today an announcement is expected from Senate Majority Leader Harry Reid (D-NV) and Senator Patrick Leahy (D-VT), chairman of the Senate Judiciary Committee re the antitrust exemption as it applies to health insurers. It comes as the House and Senate continue to debate healthcare reform legislation. An Op-Ed in todayÃ¢â‚¬â„¢s Wall Street Journal by Scott Harrington, a professor of healthcare management and insurance and risk management at the University of PennsylvaniaÃ¢â‚¬â„¢s Wharton School explains why repealing the insurance industryÃ¢â‚¬â„¢s antitrust exemption wonÃ¢â‚¬â„¢t lower the cost of health insurance or medical malpractice insurance or prevent future malpractice insurance crises. Instead, a repeal would tend to reduce rate accuracy and undermine competition in already fragile malpractice markets, Harrington says. Over the years the property/casualty insurance industry has faced numerous attempts to repeal its limited antitrust exemption. Most recently, Senator Leahy introduced the Health Insurance Industry Antitrust Enforcement Act seeking a tailored repeal of the exemption for health insurers and medical malpractice insurers. Just two years ago in the wake of Hurricane Katrina, Sen. Leahy, along with then Sen. Trent Lott sought a much broader repeal of the McCarran Ferguson Act. In March this year, Rep. Gene Taylor (D-MS) and Peter DeFazio (D-OR) also introduced the Insurance Industry Competition Act of 2009 which would remove the federal antitrust exemption from the entire insurance industry. As weÃ¢â‚¬â„¢ve noted before McCarran-Ferguson does not include a blanket exemption from antitrust laws, but a targeted exemption for certain limited insurance activities. This narrow antitrust exemption allows insurers to pool historic loss information so that they are better able to project future losses and charge an actuarially based price for their products. The act also does not exempt insurers from state antitrust laws, which explicitly prohibit insurers (and all businesses), from conspiring to fix prices or otherwise restrict competition. Check out further I.I.I. information on the McCarran Ferguson Act and medical malpractice insurance.
Creating an Office of National Insurance will be one of the topics addressed at a Congressional hearing focused on capital markets regulatory reform that is scheduled for next Tuesday October 6 before the House Committee on Financial Services. Other topics to be discussed at the hearing are strengthening investor protection and enhancing oversight of private pools of capital. Earlier this June the Obama administration called for establishing an Office of National Insurance (ONI) within the Treasury department as part of its plan to overhaul financial regulation. The ONI would monitor the industry and advise on policy issues. Draft legislation that would establish a federal insurance office was introduced yesterday by Rep. Paul Kanjorski, D-PA. The draft bill follows earlier legislation introduced by KanjorskiÃ‚ in MayÃ‚ as well as the introductionÃ‚ last April of the National Insurance Consumer Protection Act (H.R. 1880) by Rep. Melissa Bean, D-IL and Rep. Ed Royce, R-CA — both bills that would establish an ONI. Check out I.I.I. information on regulatory modernization and optional federal charter.
The role of rating agencies in state insurance regulation will come under the spotlight at a public hearing to be held by the National Association of Insurance Commissioners (NAIC) tomorrow. The public hearing comes on the same day as a Congressional hearing before the House Committee on Oversight and Government Reform titled Ã¢â‚¬Å“Credit Rating Agencies and the Next Financial Crisis.Ã¢â‚¬ The Congressional hearing follows growing scrutiny of rating agencies in the fallout from the financial crisis. Three state attorney generals are also reported to have begun investigations into major credit rating agencies to discover among other things, whether they acted improperly by assigning triple-A ratings to mortgage-backed securities that later proved highly risky or in some cases worthless. As part of the process of ensuring solvency of regulated insurance companies, the NAIC and the states use ratings to determine the risk-based capital charge for rated bonds, as well as setting many limits for insurance company risk exposures. The economic crisis has resulted in steep rating downgrades and drops in asset values and the NAICÃ¢â‚¬â„¢s Rating Agency Working Group will determine what changes, if any, are warranted in how insurance regulators use the ratings. Representatives from the major credit rating agencies including A.M. Best, DBRS, Fitch Ratings, MoodyÃ¢â‚¬â„¢s Investors Services, and Standard & PoorÃ¢â‚¬â„¢s are expected to participate in the hearing, in addition to a representative from the Securities and Exchange Commission (SEC). Just last week the SECÃ‚ voted in favor ofÃ‚ new measures to strengthen oversight of credit rating agencies by enhancing disclosure and improving the quality of ratings. For more on the NAIC hearing, check out an online article at National Underwriter by Daniel Hays.