An oft-stated assumption entering 2008 was that election-year politics would predominate and keep things quiet on the legislative front for insurers. This assumption has proven erroneous, as a host of regulatory issues have reared their heads.

Even though they may wish it were otherwise, insurance technologists do not operate in a vacuum. Just as IT must increasingly scramble to keep abreast of changes within business, leaders of business units—and the technologists that support them—must react to a rapidly evolving regulatory environment.

This intersection between regulation and technology was underscored in May in hearings before the House Financial Services Subcommittee on Oversight and Investigations, as insurers made their case for the continued use of credit scores for rating and underwriting. While a credit score may be just another metric on an underwriter’s screen, it’s also a political football as the insurance industry has been busy beating back efforts to ban the of use credit scoring at both state and federal levels.

Despite its great import for insurers, the credit scoring issue is ancillary to the question of the how the industry will be regulated. Treasury Secretary Henry Paulson kicked a hornet’s nest when he unveiled his blueprint to overhaul how financial services industries are regulated. Paulson’s blueprint called for creation of an optional federal charter (OFC), which, given the divisiveness the issue inspires within the insurance industry, is unlikely to happen any time soon.

However, the prospects appear rosier for Insurance Information Act of 2008, which promises insurers “greater uniformity and integration into the global economy.” Specifically, the legislation directs the Secretary of the Treasury to create an Office of Insurance Information that would advise the President and Congress on domestic and international policy issues regarding all lines of insurance except health insurance. While conceptually similar to the proposed Office of Insurance Oversight called for in Paulson’s blueprint, Proponents of the Insurance Information Act of 2008 carefully note that the legislation is not a call for an optional federal charter and is instead narrowly focused to provide a framework for federal policy on insurance matters.

“It’s important to have a federal perspective,” says Alessandro Iuppa, Zurich’s head of government & industry affairs for general insurance and chief government affairs officer — North America. “A state regulator, no matter how well-intentioned, cannot speak on behalf of the federal government.”

Thus, the act is seen as the middle ground, and is receiving qualified support from organizations that vigorously oppose creation of an OFC, such as the National Association of Mutual Insurance Companies. Less surprisingly, the act also is popular with large insurers such as Zurich, who say their international activities are hobbled by the lack of a federal regulator. “Our customer base is doing business throughout the world,” Iuppa says. “We can’t sit by and do nothing.”

Indeed, insurers need to not so much put aside their differences as to identify instances in which they can work together, because—given the tectonic shifts underway in the global business and regulatory environment—inaction no longer seems like an option.
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By Bill Kenealy

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