Terrorism Insurance Bill Overrides State Regulation
A consumer group condemned the federal terrorism insurance bill, signed by President Bush today, as an unnecessary bailout of the insurance industry that could cost taxpayers $90 billion and possibly more. The bill requires the federal government to function as the unpaid reinsurer of insurance companies that provide terrorism coverage.
"President Bush and Congress put insurance companies atop the list of corporations receiving taxpayer handouts and special protection during this lame-duck session. The terrorism insurance bill is part of pattern in which the Bush Administration is using the fear of terrorism to protect corporations at the expense of consumers," said Douglas Heller, senior consumer advocate for the Foundation for Taxpayer and Consumer Rights (FTCR). "Under this pre-emptive bailout, insurance companies keep most of the insurance premium, but avoid most of the risk and the public is left holding the bag."
The bill includes a provision that allows insurance companies to ignore state law and regulation, according to FTCR. Section 106 of the Terrorism Risk Insurance Act of 2002 includes a provision that removes states' rights to regulate insurers with respect to terrorism coverage. This bill would pre-empt the "prior approval" system that is used by 22 states in the setting of commercial insurance rates. State regulators, under the prior approval system, retain the right to investigate, reject or modify proposed insurance rates if the department determines the rate to be inappropriate.
States such as California do not allow insurance companies to simply increase rates. California law, as enacted by voter approved Proposition 103 in 1988, subjects all rate changes to a public process, which includes actuarial analysis, the opportunity for public input and requires insurers to defend the rate change. Under the federal bill, insurers will be allowed to file and use rates without any prior public scrutiny, which will lead to unnecessarily high rates.
"Not only is this law a financial boon for insurance companies, it is the opening gambit in an industry-led effort to deregulate insurance and destroy state oversight of rates," said Heller. "Throwing out states' rights to investigate and challenge insurance rates is like telling judges that they can't hear from witnesses."