The Federal Insurance Office: Looking Back, Looking Forward

Link: https://www.rstreet.org/2021/05/19/the-federal-insurance-office-looking-back-looking-forward/

Full pdf: https://www.rstreet.org/wp-content/uploads/2021/05/Final-No-231-FIO.pdf

Graphic:

Excerpt:

1) The FIO was created in the wake of the financial crisis, as part of the Dodd-Frank Act. It has since been active on two fronts: as a source of information about the insurance industry for the U.S. Department of the Treasury and other branches of government, and as a representative of the insurance industry in international negotiations.

2) The FIO has had a challenging first decade. Since its launch, insurers have been concerned that the introduction of a new federal body, like all bureaucracies, is the camel’s nose in the tent, which would eventually lead to attempted expansion of its scope. Today, even though many have come to accept the FIO—provided it does not attempt to exceed its authority—there are still efforts to abolish it.

3) In the past, government restrictions of the free market with involvement in insurance have proven inefficient and anticompetitive. Should the FIO advance legislative attempts to address “affordability and accessibility” of insurance, it will likely contribute to the disruption of an efficient private market closely regulated at the state level.

Author(s): Jerry Theodorou

Publication Date: 19 May 2021

Publication Site: R Street Institute

The flood insurance debate returns. Here’s what to expect

Link: https://www.eenews.net/stories/1063731009

Excerpt:

The most comprehensive proposal being floated so far is one from House Financial Services Chairwoman Maxine Waters (D-Calif.).

That discussion draft would extend the program for an additional five years and limit the government’s ability to raise the price of flood insurance amid growing concerns about affordability (E&E Daily, April 14). Current authorization for the National Flood Insurance Program (NFIP) is set to expire in five months.

….

Jerry Theodorou, director of the finance, insurance and trade program at the R Street Institute, said subsidies mask the real costs of building and living in flood-prone areas and that the Peters-Barr bill would ensure that policyholders aren’t “undercharged.”

Theodorou said the Waters bill instead would kick the can down the road, and he criticized the measure for seeking to cancel the program’s historic $20.5 billion debt.

Author(s): Hannah Northey

Publication Date: 27 April 2021

Publication Site: E&E News

How to keep thousands of COVID-19-related lawsuits from creating a liability crisis

Link: https://www.rstreet.org/2021/03/29/how-to-keep-thousands-of-covid-19-related-lawsuits-from-creating-a-liability-crisis/

Excerpt:

Younger, populist, anti-corporate juries are more prone to make larger awards than baby boomer jury pools. Plaintiff attorneys making good use of the “reptile theory” to provoke jurors to punish defendants painted as dangerous to society have led to staggeringly large verdicts. The combined impact of these trends has led to more and larger lawsuits, as well as year-over-year increases in “nuclear verdicts” — verdicts in excess of $10 million.

Some elements of the COVID-19 litigation torrent fit squarely in Buffet’s meaning of social inflation: expansion of what insurance policies cover. To be sure, the plurality of the 10,000 coronavirus suits filed involve insurance coverage litigation, with plaintiffs seeking coverage for business losses in policies where insurers maintain coverage does not exist.

Author(s): Jerry Theodorou

Publication Date: 29 March 2021

Publication Site: R Street

Bricks Without Straw?

Link: https://www.rstreet.org/2021/03/30/bricks-without-straw/

Excerpt:

Credit analytics firm FICO posits that the reason for the correlation of credit history and claim probability is that “individuals who closely and cautiously monitor and manage their finances tend to also take better care of their cars and homes and are, generally, more diligent in their risk management habits.” Because such individuals are found across demographic classifications, the discrimination argument becomes hard to uphold.

If insurers find that credit scores have bearing on accident propensity, insurers should be allowed to use them. Preventing insurers from deploying basic tools required to generate appropriate risk-adjusted prices leads to mispricing of risk, harming insurance buyers as well as insurers. What is more, such deprivation leads to unintended negative consequences—an unfair socialization of risk, leaving customers either overcharged or undercharged. Executive fiat prohibiting insurers from accessing the tools of their trade is tantamount to Pharaoh ordering the Israelites of old to make bricks without straw. Bad business, bad policy.

Author(s): Jerry Theodorou

Publication Date: 30 March 2021

Publication Site: R Street