PCI will be muscular as we continue to combat regulatory overreach, says CEO Sampson

A sharp increase in the instances of state regulators making requests for data from insurers is a major cause for concern for the Property Casualty Insurers Association of America (PCI), adding to an already big regulatory burden and increasing costs at an already challenging time for the industry.

That is the view of David Sampson, president and chief executive of the PCI, speaking ahead of the trade body’s annual event this year.

He told PCI Today that he feels many regulators are starting to overreach their mandates to the point they are requesting information and considering regulation that would affect insurers that is outside their remit and unnecessary. This trend is driving costs for insurers up in the process.

“The number of data calls [requests for information by state regulators] has now reached a level where it is intrusive and affects insurers’ ability to effectively service their customers,”

Sampson said. “Some of these calls have absolutely no connection to the primary purposes of insurance regulators, which should be to assess the market conduct of insurers and their solvency.

“It is very questionable, especially when you consider the added cost to insurers, what value some of these data calls have to the consumer; some are also duplicated across multiple states. The problem is that all this adds to the cost base of insurers at a very challenging time when profits are already being squeezed.”

Beyond their remit

Sampson explained that the PCI monitors the levels of these data calls. Between 2013 and 2015 there was a sharp rise in the number of such instances, leading to compliance costs within its members increasing by 19 percent in that period.

The data calls that Sampson cited as being unreasonable include a request by the California Insurance Commissioner for insurers to annually disclose their carbon-based investments including those in oil, gas and coal, and another by five states that required insurers to disclose levels of diversity in their workforce.

“Our members see these things as examples of regulatory overreach which has no connection to what regulators should be concerned with,” Sampson said. “On top of that, these requests are uncoordinated and often duplicated state by state. But they all take time and money to comply with, which are things insurers already have less of these days.

“Our members are concerned and have directed us to be more muscular in our approach to pushing back against that trend.”

He added that this excessive intrusion by state regulators is compounded by an increasingly complex regulatory picture at both a federal and an international level.

At the federal level, the PCI is working across multiple initiatives to ensure the voice of its members is heard. These range from the way terrorism insurance is managed and changes to automotive insurance, to excessive claims and litigation around hail claims and moves by the US Department of Housing and Urban Development to change the underwriting criteria used for home insurance to avoid alleged discrimination.

“There are a number of areas we are working on to ensure the interests of our members are fully understood and taken into account,” Sampson said. “We will resist efforts by the likes of the Department of Housing and Urban Development to extend its mandate to underwriting wherever we can.

“We continue to lobby Congress to ensure they are engaged with and understand the issues facing insurers, while we also look to have a say on some of the international negotiations that are ongoing which will determine how our members will be influenced by international regulatory changes.”

He stressed that some of the initiatives happening at a federal level are very positive for the industry. There are several sectors where the government looks increasingly likely to move risk into the private sector, a trend that could offer much-needed growth opportunities for insurers.

This is already happening thanks to Congress encouraging Fannie Mae and Freddie Mac, the US government-backed financial institutions that provide liquidity to the US mortgage markets by buying mortgages from lenders, to move more risk into the private sector. The National Flood Insurance Program has also started buying more reinsurance and moves are afoot to move more of that risk if the problem of the heavy subsidies could be overcome.

“It is early days, especially on the flood side, but our sense is that there is an increasing appetite on the part of private sector insurers to write flood risk.

“The mapping and risk models are a lot better now, the real question is whether they can get an adequate rate for this risk given that it has been so heavily subsidised for so long,” he said.

Era of uncertainty

The theme of the 2016 PCI conference is ‘An era of uncertainty’ which Sampson described as summing up the concerns of many members given the ongoing fragile economy, an increased terrorism threat, and political uncertainty around the US presidential election and the UK’s vote to leave the European Union, for example.

“There are big question marks in so many areas at the moment,” Sampson said. “No-one really knows how robust the recovery is or what direction the economies in Europe or the US are going. For insurers that makes things very difficult and it comes on top of an ongoing soft market, a low interest rate environment and huge disruptive forces in their industry in the form of new technology.

“Technology is a huge disruptor in the P&C space right now. Companies want to make sure their technology platforms are modern and adaptable to the modern needs of customers. This brings a degree of concern but also hold a lot of opportunities for companies as they look to position themselves for the future.”

There is also more focus on a greater use of analytics and the way that can revolutionise the way insurers operate, and other disruptive forces such as the rise of the sharing economy—all of which present insurers with both challenges and opportunities.