Status quo on Capitol Hill may be best

IIABA’s leader Bob Rusbuldt hopes Congress does nothing, except on TRIA

Insurance Journal’s Andrew Simpson, at the IIABA’s National Legislative Conference and Convention in Washington, D.C., in April, Rusbuldt also discussed politics, government involvement in the insurance business and the strength of agents to take action in the legislative process. The entire video interview may be viewed at: www.insurancejournal.com.

Democrats are in the committee chairs now and control the agenda. How does that change what you have to deal with?
Bob Rusbuldt: Well, Congress is under new management, and we have both challenges and opportunities with Democrats being in control. Some of the challenges, obviously, are well-known. We’re being challenged on McCarran-Ferguson right now; that hasn’t arisen for the last 12 years under Republican control.

But we have some opportunities. And the biggest opportunity is with TRIA’s renewal. The Democrats have always been more supportive of a terrorism backstop than the Republicans, which want more free market to work with the insurance marketplace.

So the challenges and opportunities are there, but frankly, the industry has moved to playing a little more defense than offense under the Republican management.

The presidential race has begun. Former Massachusetts’ Gov. Mitt Romney was in Florida recently and endorsed a federal catastrophe plan. Do you have a sense of how presidential politics might begin to affect how your issues in Congress play out?
Rusbuldt: All politics affect the insurance industry and businesses in general. And it doesn’t matter at what level — local level, with mitigation issues and building codes, to the state level, where we are primarily regulated, to members of Congress, to the president of the United States — every single political decision-maker has an effect, in one way or another, on our industry. So yes, presidential politics has a huge effect on the independent agency system and in our industry in general.

So you look at the president — what’s he going to do on TRIA? And the next president may have to make that same decision if we don’t get a long-term extension. What’s the next president going to do on flood insurance reform, crop insurance, on insurance regulatory reform? These are all now federal and state issues; they’re not just state issues or just federal issues.

We are dealing with two sets of government here. So presidential politics will play a big role in the future of the insurance industry.

It’s no secret that independent agents are involved in their communities, and they have great grassroots connections at home. How does that translate when you get to Washington? Do they have the same kind of connections with their federal representatives?
Rusbuldt: Absolutely. We have many members of Congress that are actually members of the Big “I” and former independent agents. We just gave our Legislator of the Year Award to Congressman Tom Reynolds, former Big “I” independent agent member from upstate New York and the former chairman of the NRCC [National Republican Congressional Committee] and a House Ways and Means Committee member.

And they’re bipartisan. John Tanner, a Democrat from Tennessee … his family still runs two agencies in the state of Tennessee, and he was very active in the agencies before he became a member of Congress. Tim Holden, a Democrat from Pennsylvania, is a former Big “I” member. And the list goes on and on.

And we’ve had Senators in the past that have been members. We have a couple of governors. We have insurance commissioners that are members of the Big “I”. So yes, we permeate all levels of government. The connections are strong between independent agents and members of Congress.

Independent insurance agents are supportive of a renewal of TRIA, supportive of some form of federal catastrophe plan, and some expansion of limits in coverages to the flood insurance program. How do you square that with a general opposition to government getting in the insurance business?
Rusbuldt: That’s a really good question. If there is a private market available — in any way, shape, or form — we want it to work, we want it to work properly. But for many reasons, in states like Florida and in coastal states, earthquake-prone areas, the markets are not working properly. And that means, if you don’t have markets working properly, consumers are left holding the bag.

You have to have insurance for the economy to flourish. Without insurance, there’s no building, there’s no home purchases, there’s no economic activity — it comes to a grinding halt. We’re seeing the beginning parts of an economic meltdown in the state of Florida. Citizens — they’re already the largest homeowner insurance company in the state of Florida, a government-run entity — they could end up being the largest commercial lines property/casualty company in the state of Florida as well. That would be a disaster, in my opinion, for independent agents, and ultimately a disaster for customers. They are not capitalized like an insurance company. We all know that if the big one hits, another Hurricane Andrew or a series of smaller ones that do severe damage to the state of Florida that state is going into bankruptcy. I don’t even know if you can raise enough taxes to bail out that insurance company.

Where’s that going to end up? We’ve still got several months for this to play out, but right now it looks like a lot of this legislation is moving ahead.
Rusbuldt: It is. Florida’s already passed significant legislation. And it’s interesting, when an insurer buys reinsurance, they know the day after an event happens that the reinsurance is going to be there, and they can pay their claims because they’re receiving their payments from the reinsurer.

In the case of Florida, if the big one hits there, they have to float bonds, they have to wait for the legislature to meet and raise taxes and all those sorts of things.

Having said that, we have to have a functional marketplace, not just in Florida, but in South Carolina; in the Outer Banks; in Long Island, New York; Cape Cod, Massachusetts. These are pretty much dysfunctional markets, and the government has stepped in, whether it’s the state government, or federal government, in the case of TRIA.

There are some risks that are uninsurable and that’s why we want Congress to look at things like a federal backstop for natural disasters. We’re not saying that’s the only answer; we’re saying it’s something that Congress should seriously look at.

We think they should look at tax-free loss reserving, like the European model, and over 20 years, companies could build up enough reserves to deal with natural disasters. There are a lot of innovative ideas out there, but Congress has to look at this, and they have to deal with this, or we are going to have dysfunctional markets like we haven’t seen before in this country.

It seems the entire industry has been hurt by the controversies over Hurricane Katrina claims. Have you felt the effects of that in Congress?
Rusbuldt: Absolutely. Just talk to Sen.Trent Lott or Congressman Gene Taylor or some of the Louisiana members of Congress — they are hopping mad at the insurance industry in general. In particular, State Farm is singled out, but at the industry in general, there’s a lot of collateral damage taking place right now, whether it’s independent agents or independent agency companies. But there is real anger towards our industry on Capitol Hill. Now, is it every member of Congress? The answer, of course, is no. It’s more regionalized and localized in the Southeast region. But it is real, and it is there — and we have to deal with it.

What’s the status of relationships between agents and companies today?
Rusbuldt: I would say that the relations right now, in general, are a little strained. There is a lot of trepidation over the producer compensation issue and what this was going to mean for their profit-sharing and their contingency programs and arrangements. I think that some of that trepidation is starting to go down … as they see the plans, as they see that the investigation appears to be winding down, and that contingencies are still legal — they’ve always been legal.

And it doesn’t appear that the 5,000 property/casualty insurance companies around the country are all going to follow like lemmings doing the same thing.

So I think they’ve been pleased with what a couple of the companies have done. That’s at least the positive reaction. Some have not been pleased, and they’ve expressed that directly to the companies. But I think that the relations have been strained if you’re in Florida or a Gulf Coast state. If you’re in an earthquake-prone area, in personal lines. Some companies are cutting back even on commercial lines now.

So the relationship could be better, but it’s like a marriage. We are married to the independent agency companies, and they’re married to us. And marriages sometimes are going great, and sometimes you’re having arguments and you have issues and problems. There is nothing that’s insurmountable in our partnership with independent agency companies.

If you could get three things out of Congress before it adjourns this session, what would they be?
Rusbuldt: It would be to do nothing, actually, for the most part, with the exception of TRIA. We don’t want them to do anything on McCarran-Ferguson, we don’t want them to do anything on optional federal charters, and we do want them to extend and renew TRIA.