About Nathan Bacchus

Nathan Bacchus is senior government affairs manager at theRisk and Insurance Management Society (RIMS).

What the 2015 State of the Union Means for Risk Managers

state of the union 2015

Last night, President Obama delivered the annual State of the Union. Unsurprisingly, the speech covered a variety of topics ranging from foreign affairs to civil rights to climate change. While these issues may ultimately have little impact on the insurance industry or risk management, there were two topics raised that could be of significant interest.

The first relates to tax reform:

“As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight. They’ve riddled it with giveaways the superrich don’t need, denying a break to middle class families who do,” Obama said.

For the past few years, the Obama administration’s annual budget proposal has included a measure that would deny a tax deduction for certain reinsurance premiums paid to foreign-based affiliates by domestic insurers. While the administration and some members of Congress deem this deduction a “loophole,” it is actually a commonly used and effective risk management tool. Doing away with this particular “loophole” would force the industry as a whole to reduce the size and scope of its U.S. offerings. A previous economic impact study found that this proposal would reduce the net supply of reinsurance in the United States by 20%, thus increasing prices by $11 to $13 billion annually for the same coverage. If Congress does take up comprehensive tax reform, this is certainly an initiative that many in the industry will need to keep an eye on.

The other issue is cybersecurity:

“And tonight, I urge this Congress to finally pass the legislation we need to better meet the evolving threat of cyberattacks, combat identity theft, and protect our children’s information. If we don’t act, we’ll leave our nation and our economy vulnerable. If we do, we can continue to protect the technologies that have unleashed untold opportunities for people around the globe,” the president said.

Cybersecurity and the management of cyberrisks is certainly one of the hottest topics in the industry. While it remains unclear what proposed legislation will look like, we will almost certainly see at least one major piece of cybersecurity legislation introduced in the next few months. Previous efforts have focused on information-sharing. With the number of attacks and damage inflicted only increasing, however, it is quite possible that new legislation may be even broader in scope.

It is also important to note that simply including something in a State of the Union address does not always translate into real action. It is quite possible that tax reform will get tabled again as various factions are unable to agree. It’s also possible that Congress will be unable to come up with a cybersecurity bill that achieves many of its goals without undermining the privacy or personal security of individuals. It is, however, an overview of the administration’s priorities for the coming year, and that does still carry some weight.

The End of the Florida Workers Compensation System?

Workers Compensation Florida

A recent development in Florida has jumped that state to the front of the age old workers comp debate between employers and their workers. On August 13, Miami-Dade Circuit Judge Jorge Cueto declared the state’s workers’ compensation exclusive remedy statute (440.01 et seq.) unconstitutional on the grounds that the benefits given to injured employees by the law no longer provide a fair exchange for the surrender of an employee’s right to sue the employer for negligence damages. “The benefits in the act have been so decimated that it no longer provides a reasonable alternative,” said Judge Cueto.

For years, workers rights attorneys in Florida have been asking judges to strike down the Florida workers compensation law. They argue that successive state legislatures have continually eroded the benefits that injured employees receive under the workers comp system. Employers and some legislators counter that high workers comp insurance premiums have those changes necessary in order to stabilize the state’s economy.

For now, Judge Cueto’s ruling will not impact areas outside of Miami-Dade’s judicial circuit. Florida Attorney General Pam Bondi, who has received criticism for not directly intervening in the Miami-Dade case on behalf of the state, has filed an appeal to Judge Cueto for a rehearing. If that appeal is denied, as seems likely, then the case could eventually make its way to the Florida Supreme Court. Should the Supreme Court uphold Judge Cueto’s ruling then workers throughout the state will be able to settle their workers compensation claims, then file a civil claim to recover additional benefits.

This case will join other cases challenging parts of Florida’s workers comp statutes. The state Supreme Court is considering an appeal from an injured firefighter who was left with no income after his temporary wage-loss benefits expired.

Key Differences Remain Between House and Senate on TRIA Extension

As the December 31, 2014 expiration of the Terrorism Risk Insurance Act inches closer, both chambers of Congress are moving forward with their version of a long-term extension. The Senate is expected to pass its version of an extension as early as Thursday while the House Financial Services Committee approved its version of an extension along party lines on June 20th. The House proposed extension would make substantial changes to TRIA that can be seen in the following table:

House Republicans Draft TRIA Proposal Could Mean Big Changes to Come

Last week, Rep. Randy Neugebauer (R-TX), Chairman of the House Insurance Subcommittee, released to his fellow Republicans a draft proposal to extend the federal terrorism insurance program. That proposal, now made public, would bring drastic changes to a program that has helped to stabilize the market since its 2002 creation. At this point, the proposal is only in outline form with bill language expected over the next few weeks.

The proposal, entitled the Terrorism Risk Insurance Modernization Act of 2014, would extend the TRIA program for only three years while significantly increasing the program trigger limit to $500 million from $100 million, for non-NBCR events, and reducing the annual government assistance cap from $100 billion to $75 billion. The government’s co-share of losses would decrease from its current 85% to 75% beginning in 2017, for non-NBCR events. The government’s responsibility and trigger would remain the same for NBCR certified acts.

The industry has been expecting adjustments to be made to TRIA, upon its extension; however, the numbers included in the Republican proposal are more drastic than many envisioned. Beyond concerns with the changes to the program trigger and co-share percentages, there are additional concerns with language in the proposal allowing for small insurers to opt-out and an implication that domestic terrorism events would no longer be covered by the program. The requirement that insurers offer terrorism coverage is the backbone of the program, and allowing some insurers to opt-out of offering such coverage could lead to reduced capacity and higher prices for consumers. Excluding domestic terrorism would also be a mistake, as history has shown us that terrorists can come from inside and outside the United States.

If there is a positive in the House Republican proposal, it is in changes to the certification process. Many industry groups, including RIMS, have been asking for a timeline for events to be certified as “acts of terrorism.” The proposal includes a deadline of 90 days.

The House Republican proposal is a far cry from the recent Senate agreement. That bi-partisan legislation, S.2244, would extend the program for seven years while making much smaller adjustments to the program. If both chambers pass bills along current lines, then the conference committee would have a lot of work to do in order to rectify the two pieces of legislation into a compromise extension.