Catching Up with AIA
Eric Goldberg, Associate General Counsel & Manager, State Programs for the American Insurance Association (AIA), serves as a liaison to state-based national organizations and advocates AIA’s policy and positions.
In this interview, Goldberg explains AIA’s role in advocating for legislation that helps insurers manage natural catastrophe risks and discusses how SH&E professionals can make the most of insurers’ resources to manage risks and control losses.
Please provide a brief description of your role and responsibilities as Associate General Counsel & Manager, State Programs, for AIA.
I have a dual role that covers both government affairs and the law department. Government affairs involves serving as AIA’s liaison to state-based national organizations such as the National Conference of Insurance Legislators, the National Conference of State Legislators and the American Legislative Exchange Council. I identify issues these groups are working on and advocate AIA’s policy and positions related to those issues. With respect to the law department, I staff our practice group on natural catastrophes and property insurance issues, and I also staff committees responsible for developing policy and positions on those issues.
In light of recent events such as Hurricane Katrina in 2005 and the Southern California wildfires in 2007, how is AIA working with states and Congress to ensure that adequate insurance protection is provided before, during and after natural disasters?
Insurance is a state-regulated industry. We are at a pivotal point in history in terms of how we look at the roles of the private sector and government with respect to property protection in the U.S.
The insurance industry is well-positioned to protect against natural catastrophe risk. Lawmakers have taken a more active role in government to provide insurance for all natural catastrophe risks. AIA believes there is a populist, but flawed, appeal to more government involvement, for example, in creating new, state-run catastrophe reinsurance funds, which is something a number of states have considered recently.
We believe one factor that is preventing the private insurance market from maximizing its capacity is the current patchwork quilt of state regulation and the lack of an optional federal charter for insurers. Our members write all lines of property and casualty insurance throughout the country and the world. To maximize efficiency and to put us on the same footing as sectors of the financial services industry, insurers need the option of one federal regulator.
Many pieces of legislation are pending in Congress that address natural catastrophe issues. One example is the Klein-Mahoney bill (H.R. 3355) that would provide cheap federal loans to state-run insurance pools that do not manage themselves properly.
What is AIA’s Natural Catastrophe Agenda, and what initiatives does it include?
AIA knows that there are no magic fixes to property insurance availability issues. We believe steps must be taken that, over the long run, will return the catastrophe-prone areas of the country to a more normalized system of property insurance. One facet of our agenda involves loss prevention and mitigation—the enactment and enforcement of modern building codes and smart land use planning. In addition, market-based incentives could be put into place to encourage individuals to take steps to protect themselves and their homes from natural catastrophe risk. The other prongs of our agenda include:
Land use planning: Much building is taking place in parts of the country that are susceptible to natural catastrophes such as wildfires and earthquakes. State and local policymakers should look at where this development takes place and either prohibit these areas from being developed or ensure that the people who choose to live there are prepared to pay the real costs associated with managing the risks to which they are susceptible.
Reforming and modernizing the national flood insurance program: The program has not been updated in a meaningful way since 1994. Many changes must be made to provide protection to people who live in flood-prone areas today.
Regulation reform: Insurers must operate in a stable environment. Following a natural catastrophe, state regulators and legislators feel like they must “do something.” It is not uncommon for regulators to change the rules of the game midstream. It is difficult to underwrite for such “regulatory risk” because human factors are involved, and it is virtually impossible to predict how people will act. We think that more stability in legislative and regulatory environments is needed to give capital investors the assurances they need to invest in a certain market.
Legal reform: After Hurricane Katrina, private attorneys and state attorneys general sued insurance companies, challenging the underlying contract language—contracts that had been approved by regulators and in use for decades. Insurers must know that the contracts they enter into are upheld, and investors need the certainty and stability that contracts will be upheld to attract capital.
Tax-based incentives: Many tax reforms can be implemented that will have a positive impact on recovery efforts. For example, South Carolina enacted legislation last year that allows individuals to set aside pretax dollars to pay for mitigation efforts, such as storm shutters, impact-resistant garage doors and generators, to protect against the extent of loss. Florida sometimes holds sales tax holidays so people can buy items intended to protect homes from natural catastrophes.
With respect to public policy, what new challenges does AIA expect to face this year?
This year, we will see many of the same issues that arose in 2006 and 2007. Natural catastrophe issues will be on the agenda of state legislators in virtually all coastal states from Maine to Texas. Optional federal chartering will continue to be a major issue too.
We are pleased that Congress passed an extension of the Terrorism Risk Insurance Act, which gives insurers a much-needed backstop to protect against manmade disasters.
Loss control is a major part of property and casualty insurance. AIA has a loss control committee that is comprised of heads of loss control from our member companies. The committee focuses on legislation and regulation impacting the loss control industry. It is also a forum for loss control professionals to get together and discuss legislative, regulatory and compliance challenges.
AIA supports workers’ compensation reform. How do you predict these reforms will impact occupational safety and health in the long term?
We believe the insurer can play an important role in working with customers to help identify changes that can be made to reduce injuries. But this only works when there is a company-wide commitment to safety and health. If top management believes in a culture of safety and health in the workplace, an effective partnership can exist between the insurer and employer.
How can SH&E professionals make the most of the insurance mechanism when developing a safety program?
The pricing of insurance product is related to the expected risk of loss. For example, workers’ compensation insurance has a two-step “experience rating” system. First, the policyholder is put into a category or categories with similar employers.
Second, the insurer looks at how this policyholder’s safety and health record compares with similar employers. All things being equal, if you have had fewer losses than other similar employers, you will generally pay less for workers’ compensation insurance. If you have worse-than-average experience, you pay more. On the prevention end, many insurance companies have resources available to help SH&E professionals address causes of loss. These resources range from pamphlets and videos to onsite surveys with follow-up recommendations. It depends on the size and nature of the employer and the insurance company with which the employer is working. If an employer’s SH&E professional is concerned about losses, the employer should contact the insurance company to find out what resources are available and may be able to partner with the insurance company to address those losses.
AIA supports the development of an optional federal charter, under which insurers would have the option of obtaining a federal charter in lieu of the current state-by-state system of licensing and regulation. Why is the development of this charter important, and what is its predicted long-term impact on the insurance industry?
We think that the implementation of an optional federal charter is critical to the modernization of the insurance industry. The insurance industry is one of the last outposts of price and product control. Before you sell a product, a state regulator must approve it. This impedes innovation in the marketplace. Federal oversight would result in more efficiency and would help foster innovation.
Banks, investment companies and other sectors have the option of being regulated at the federal level, yet insurance companies are subject to regulation that varies significantly by state. The two major functions of the regulator—monitoring financial solvency and making sure insurance companies act fairly in the marketplace—can both be handled more efficiently by a federal regulator.
For example, an insurance company must file an annual financial statement every year with state regulators. This is particularly burdensome because one insurance group might have 17 different writing companies in a given state, and each of these writing companies must file its own financial statement with the state regulator. So hundreds and hundreds of these statements, which all contain essentially the same information, are filed every year.
The Gramm-Leach-Bliley Act, which was enacted in 1999, repealed the Depression-era Glass-Steagall Act, which prohibited banks from selling insurance and from insurance companies being banks. However, banks can be regulated at the federal level, while insurance companies are still regulated by states. The option of a federal charter for insurers would help level this playing field.
What are AIA’s plans and goals for 2008?
We have a legislative agenda that ranges from asbestos to workers’ compensation. We will continue to work to ensure that insurers have the tools available to manage their risks and to bring new products to market. We will also continue to ensure that the role of the private sector is maximized and to advocate for a modern and effective system of regulation.
Eric Goldberg serves as Associate General Counsel & Manager, State Programs, for the American Insurance Association (AIA). Among his law department responsibilities, Goldberg chairs the AIA property insurance practice group and staffs its committees responsible for the association’s legislative and regulatory policy on commercial and personal property lines.
In the area of state government affairs, Goldberg serves as AIA’s liaison to national state organizations, such as ALEC, NCOIL, NCSL and NICB, to identify all relevant issues and to advance AIA public policy goals and objectives.
Before joining AIA in 1992, Goldberg served on the staff of the U.S. Senate Judiciary Committee and on its Subcommittee on Juvenile Justice. He also worked as a judicial law clerk with the Superior Court of the District of Columbia.
Goldberg speaks frequently on property and casualty insurance issues. He regularly testifies before legislative bodies and regulatory agencies, and he has appeared on National Public Radio’s “All Things Considered” and on C-NBC’s “How to Succeed in Business.”
He is a graduate of the George Washington University and the Washington University School of Law. He is also an active member of the Bar of the Commonwealth of Pennsylvania and the District of Columbia.