Oxley Forecasts Insurance Issues Awaiting the 108th Congress

For more than a year, the issue of federal backstop legislation for terrorism risk has dominated Congress’ attention when it comes to insurance industry issues. Now that the Terrorism Risk Insurance Act has been passed and signed into law, federal legislators will likely focus on other less prominent—but hardly insignificant—proposals that will affect the industry.

Congressman Michael Oxley (R-Ohio), chairman of the House Financial Services Committee, will play a key role in any legislation brought forth by the next session of Congress. Currently serving his tenth term in the House, he and his committee helped craft the anti-money laundering provisions of the PATRIOT Act passed after the Sept. 11 attacks, and more obviously had a role in the Sarbanes-Oxley law passed to curb corporate misconduct in the wake of the Enron, Tyco and Worldcom scandals in 2002.

At the Standard & Poor’s 2002 Annual Executive Conference for the Property-Casualty Industry, Oxley recounted the arduous process of getting the Terrorism Risk Insurance Act through both houses of Congress and to the President’s desk. He also identified industry issues awaiting legislators’ attention in the next session.

2001-2002: thwarted agendas
Oxley explained how two monumental issues—the Sept. 11 terrorist attacks and the outbreak of corporate scandals—waylaid Congress’ intentions to deal with pre-existing issues related to insurance and other industries.

“It’s been a whirlwind two years by any stretch of the imagination,” the congressman said. “I was chosen to head this new committee, Financial Services, which was the melding of the old Banking Committee that went back many, many, many years, along with the subcommittee that I chaired, the Commerce Committee, for a couple of terms, called, Finance and Hazardous Materials. We had kind of an odd combination—we called it cash and trash …

“It’s been an experience that, while we try to set our agenda, in at least two major instances, our agenda was torn asunder by events beyond our control,” Oxley continued. “Obviously the first was the attack on 9/11 and our immediate involvement in part of the PATRIOT Act that ultimately the President signed last October. Our provisions included the anti-money laundering provisions in the PATRIOT Act, and the involvement by the Treasury Department and law enforcement in securing as many avenues of funding for terrorism and closing them down, freezing those assets.”

Oxley noted that Enron disclosures in late 2001 and the company’s bankruptcy filing on December 6 of last year was one high-profile corporate scandal in a string of such events that veered Congress’ attention away from the terrorism bill. At the first congressional hearing on Enron, which his committee held, lawmakers grilled the former CEO of Arthur Andersen, as well as some people from Enron. “We followed that up with other hearings which led ultimately to a hearing on Worldcom earlier this year and passage of legislation in April that we called the Corporate Accountability, Responsibility, and Transparency Act, which ultimately became the Sarbanes-Oxley law that the President signed in late July,” he said.

Wrangling for backstop passage
Although the terrorism backstop legislation was often stymied over the past year, Oxley attributed its passage to President Bush’s use of the bully pulpit to constantly press the issue.

“The President, as you recall, on virtually every public opportunity spoke about the need for terrorism insurance,” Oxley said. “He was in full throttle virtually every time I saw him—about the only time he didn’t mention terrorism insurance, I think, was his address to the United Nations. Every other time, he emphasized how important it was to get that done. As I told the president at the bill signing ceremony … ‘It was ugly, but it was a W.’ Sometimes legislation works that way. While Hank (Greenberg) is correct that there’s no such thing as a perfect bill, given the circumstances of the push and pull of politics … we’re pretty proud of what we were able to do, because ultimately the insurance industry needed some kind of certainty out there, some kind of parameter, some kind of ability to determine what kind of choices they had to make in the marketplace to provide coverage across the board, including terrorism insurance.

“Hopefully our bill at least started that process,” he continued. “There was so much uncertainty out there in the marketplace that it led to a situation where, as the President indicated, billions of dollars, some $15 billion in projects, were sitting idle. Three hundred thousand workers were idled as a result. It was brought to my attention by former Treasury Secretary Paul O’Neill, who was in my district prior to the election—he had just come from Chicago and had visited a hole in the ground that was to be a major headquarters for a major hotel chain. They couldn’t get terrorism insurance—therefore, they couldn’t get the funding necessary. It crystallized, I think, everybody’s attention on this issue, because it wasn’t just all of a sudden New York City, but it affected properties all over the country. Contractors, construction workers, realtors and insurers all over the country. That’s why, at the end of the day, this was so important to the President, so important to many of us, to make certain that we got that completed.”

Oxley said that despite the fact that passage of the bill had had to wait until the lame duck session, he characterized that session as “the shortest and most productive lame duck session that I’ve been involved in my 22 years in Washington, because the President made it clear that that was one of the major bills that he needed to get on his desk.”

But passing the legislation into law was one thing; implementation, as insurers are discovering, is a whole new matter.

“Now the hard work begins of implementing the changes that are necessary for the Terrorism Risk Insurance Act,” Oxley said. “The next step is … working with regulators so that we get a seamless change and a seamless policy so that everybody understands exactly where we are. The legislation really does serve as an insurance policy against possible future terrorist attacks, providing a safety net for U.S. businesses and insurers. Our committee is working closely with both the Treasury Department and the National Association of Insurance Commissioners to clean up some of the implementation issues to make them fair and workable for both insurers and policyholders … We need to hear from (insurers) as to what’s working and what’s not, what states are providing the kind of leadership that we envision in the act, and what kind of states perhaps are being overly regulatory and not allowing the free market to work.”

Full plate for the 108th
In addition to addressing the terrorism insurance issue, Oxley speculated on proposals the new Congress is likely to take up upon its reconvening.

“Let’s look ahead a little bit to the 108th Congress and what we tentatively have on our plate,” he began. “I say ‘tentatively’ because I’ve learned after two years of unexpected consequences to set an agenda but be flexible as we do so.

“The House last year passed very important anti-fraud legislation,” Oxley said. “We’re going to be working on that legislation again this year. The Senate … failed to act on this provision, but it’s incredibly important. Financial fraud costs the industry and consumers over $100 billion a year.”

He then touched upon the contentious topic of asbestos—a substance perhaps as impervious to insurers’ reserves as it is to fire. “Asbestos … continues to be a tragic issue for workers, U.S. businesses and insurers. A couple of recent studies … found that asbestos lawsuits had cost U.S. businesses $54 billion. Over 60 companies in 47 states have gone bankrupt, putting over 50,000 out of jobs … More troubling is the finding that only one fifth to one half of all claims have gone to court, and claims can total over $200 billion.”

Oxley also mentioned the National Flood Insurance Program, which sunset at the end of 2002. “An issue that calls for quick action in the 108th Congress is the reauthorization of the flood insurance program. We’ve heard from many in the financial services industry of the need to reauthorize this important program. The list includes insurers, insurance agents, banks and real estate agents, just to name a few. I realize the importance of the program and intend to make speedy authorization one of my earliest priorities.

“As a matter of fact, I will be introducing a bill on the first day of Congress, Jan. 7, which would restore that legislation and reauthorize it,” he continued. “I’ll be introducing it with my new ranking member, Barney Frank of Massachusetts. We expect a quick resolution of that issue, as many people will be unable to close real estate deals and others will lose, through no fault of their own, flood insurance coverage until the Congress acts.”

Revamping regulations
Another area that Oxley believes warrants legislative action, albeit less rapidly than for other issues, is modernization of insurance regulation.

“Then there’s insurance regulation and competition. That issue is not ready yet for quick action, but it’s nonetheless extremely important to consumers and industry alike, and that’s the need to vitalize our insurance regulation. As we move into the 21st century, more coherent regulatory structure for the insurance marketplace should be one of the industry’s top priorities. The Financial Services Committee was created in part to enable us to carry forward the financial modernization and regulatory reform that we began a few years ago with Gramm-Leach-Bliley.”

Oxley continued, “The current regulatory maze, consisting of 56 overlapping jurisdictions each trying to impose their rules is not the ideal structure for our dynamic marketplace. Insurers need the ability to quickly adjust to current conditions and the ever changing needs of their customers.

“In 2001, our capital markets subcommittee, chaired by Richard Baker of Louisiana, held a number of hearings to examine the current structure of insurance regulation to better understand the system and determine the need for reform,” he said. “The hearings focused on such issues as promoting uniformity on agent licensing, improving speed to market for new product approval, and over-regulation of auto insurance. We had planned additional hearings for later in the year, but it was necessary to put the committee’s review on hold following the events of Sept. 11. We were able to return to our review of insurance regulation in June of this year, with three hearings on the topic.”

The congressman concluded, “The question is no longer whether the system needs reform, but how do we reform the system. The committee has now turned from review of the problems to a discussion of real life solutions. Consensus reform will be difficult, but we will work step by step with all interested parties to keep our marketplace the strongest and most competitive in the world.”

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