This was the last meeting of the 1752 New England Club before summer; It will reconvene in September
In what has become an unofficial tradition of the NE 1752 Club, the Property Casualty Insurance Association of America’s (PCI) Vice President of State Government Relations, Frank O’Brien came by to brief members. His talk was titled, “What’s Up in Insurance Issues in New England’s State House.” Based out of Chicago, PCI is a national property casualty trade association with about 1000 members. Since the insurance industry continues to be a state-based and state regulated industry, the trade association also has a variety regional offices, including Boston where Mr. O’Brien is based.
Mr. O’Brien first noted that in his work for PCI he deals not only with State Legislatures, but also with Insurance Departments, Attorney General’s offices as well as other agencies like the Department of Labor, Department of Industrial Accidents and Registries of Motor Vehicles. Essentially any state entity that impacts what insurers do on a daily basis. The PCI is also increasing its presence on the Federal level as the Federal Government gets more involved in insurance matters.
“We’re busy, our members are busy, [there is] always going to be a need for insurance and insurance regulation.”
As the vice president, state government relations for PCI for the last 17 years, Mr. O’Brien noted that the highly regulated insurance industry was “the first and last” industry to be so. Mr. O’Brien said that he likes to tell people that “We were the first regulated industry, will also probably be that last regulated industry.” He then went on to give members an insight into the three main issues facing not only the Massachusetts, but all of the New England State Legislatures right now.
The three main issues facing State Legislatures in 2015
In his opening remarks, Mr. O’Brien noted that there are a lot of issues impacting state Legislatures but the three main issues facing the Massachusetts State House this year are: the state budget, healthcare, and the ridesharing economy.
In an unfortunate sign of the times, Mr. O’Brien said all of the New England states are having significant budgetary problems. “First and foremost, in all the states where I work the biggest issue is money,” Mr. O’Brien noted. “States have significant budgetary problems and are wrestling with how to pay for things.” He explained that most states are wrestling with how to pay for items such as rising education and infrastructure costs, but what states can do to alleviate these budgetary woes is more complicated than just raising taxes.
For example, the state of Vermont recently had an issue on whether to pass an expanded sales tax, that would not only tax goods but services. For the PCI, the issue was the danger that a sales tax on services could be levied on insurance products. Fortunately, Mr. O’Brien explained, “…it was poor drafting that led the PCI to that concern.”
“The bill said what we thought it said, that potentially insurance policies could be subject to the service tax,” said Mr. O’Brien. After going deeper into the issue, however, it was clear that the intention of the drafters was not to impose a service tax on insurance products and once notified, legislators indicated quickly that they were prepared to clarify that. In the meantime, however, a lot of strong opposition arose against the idea of a tax on services altogether.
Ultimately, Mr. O’Brien said the Vermont Legislature changed the proposed bill from a tax to a study of a tax. And even the Governor is concerned because like many other states, Vermont does not want to be seen as an outlier and a place not open to business. As Mr. O’Brien commented at one point, “What business wants to add 4.5% to its costs?”
As has been for the last couple of years, healthcare and its rising costs have also been an issue State Houses have been grappling with. According to Mr. O’Brien while costs are not rising at the alarming rate as in the last couple of year, states continue to spend a significant portion of their budgets on healthcare. “The general consensus is,” added Mr. O’Brien,”… that those continuing expenditures are not sustainable. So the main is issue is how they are going to reign in healthcare costs.” So all states are struggling with how to accomplish this.
How that translates to the property-casualty industry is through worker’s compensation writers and automobile insurance writers. In worker’s comp what you are seeing is “cost-shifting.” In a lot of states, worker’s compensation is one of the few remaining areas with a “fee schedule” that limits health costs, “so you are seeing caution,” he noted. As a result, in a state like New Hampshire they are now rethinking the fee schedule altogether. It’s interesting noted Mr. O’Brien that is it the provider community which is wary versus the business community of this issue.
Another way in which healthcare costs affects the property-casualty industry is through automobile insurance. For example, one of the significant issues down the road involves the scenario in which everyone is eventually covered by universal healthcare. Mr. O’Brien said with that scenario you then have to ask “…what is going to be the fate of products like med/pay?”
The Sharing Economy
Aside from the budget woes and healthcare costs, the other major issue facing states like Massachusetts is what Mr. O’Brien calls “The Sharing Economy.” Right now, the Sharing Economy, explained Mr. O’Brien is epitomized by companies like Uber and Lyft. It has created a very disruptive technology with a lot of implications on the private passenger automobile insurance side of things noted Mr. O’Brien. As he put it, “Uber has invented the better mousetrap.”
The way these companies operate, however, essentially blurs the line between private passenger and commercial automobile insurance. “Standard private passenger automobile insurance policy has forever had a livery exclusion,” he explained. There is no coverage for carrying a passenger for a fee.” The problem, however, is that with Transportation Network Carriers, or TNCs, there is not the sharp division as before. For some TNC drivers using their own vehicle, this is a part-time job, for others it is full-time.
One of the major sticking points between insurers and TNCs focused on the issue of insurance coverage for TNC drivers in “Period I” or during the time in which a driver, using his own vehicle has a TNC app on, but no passengers. Within the last month, Mr. O’Brien says there has been a major compromise that ensures that there will be coverage in “Period I” for TNC drivers. This coverage will provided by the TNC companies and or the TNC driver, he explained and is “… essentially compulsory coverage with no collision.” The effect is that this compromise has diffused the TNCs insurance coverage issue.
In response, he says over 40 states are now in the process of proposing TNC Legislation that essentially enacts this compromise, including Massachusetts.
In Massachusetts, the TNC Bill proposed by Governor Baker, set out a regulatory framework for how TNCs are going to operate in the Commonwealth. The Bill also includes insurance related provisions that nod to the compromise between insurers and the TNC. While the proposed legislation appeared to have solved some significant issues for TNCs, it also exposed other issues. In particular, citing a recent Boston Globe article, Mr. O’Brien said the article was from the perspective of the disabled whose concerns were not addressed in the proposed legislation. So, it is clear, he added that while some of the TNC’s issues have been resolved, there are going to be more issues to confront in the near future.
As for other parts of the “Sharing Economy” Mr. O’Brien said companies AirBnB and RelayRides will also create many issues for the insurance community. With AirBnB this issue involves renting out your home and whether that is more like renting a summer cottage or engaging in commerce. Relay Rides, on the other hand, involves the rental of your car while away on a trip and so like Uber and Lyft create problems with an owner’s private passenger auto insurance policy. “The possibilities are endless,” said Mr. O’Brien as well as the risks. A lot of the time, he noted, “…it’s simply where you draw the line.”
For the insurance industry, while the new “Sharing Economy” provides a whole breadth of new coverage issues it also provides the industry with opportunity. “At the end of the day, the insurance industry has a long history,” he added. One hundred and twenty years ago, some new disruptive technology came along called the automobile.” Mr. O’Brien noted. If the industry could figure out how to incorporate and insure that new technology, it will be able to do the same for the technology of the new “Sharing Economy.”
Other issues affecting Massachusetts
In ending, Mr. O’Brien noted that in Massachusetts there are a lot of other insurance issues that are playing out slowly. There are number of issues involving worker’s compensation, including benefits, administrative issues and reports. He also noted that with states now competing against one another on the economic development side of things, there is a lot of pressure now to keep worker’s compensation costs down.
And then there was the winter. In what he coined as a “silent spreading disaster,” Mr. O’Brien said it would be interesting to see if there will be any legislation as a result of all of the thousands of homeowner’s claims from this past winter. Overall, he thought since homeowner companies were ready and responded well to this winter’s wrath, this issue will not be as big as it could have been.
Lastly, the PCI vice president acknowledge the MA headlight surcharge issue and the fact that it was headed for repeal. “This thing came out of nowhere,” he said. ” It was not something that we were looking at or expecting.” The Massachusetts Legislature is very anti-insurance surcharge. Doing something to increase constituents’ costs via an insurance surcharge is like the “third rail” in Massachusetts politics. So the fact that there was a surcharge with the headlight law was a surprise. We didn’t know about it, we had nothing to do with and so cannot be blamed for it.” Overall, he expects the surcharge to be wiped off the books “sometime in June.”
Final Q&A with NE 1752 members
During the final Q&A, Mr. O’Brien responded to one member’s question about terrorism insurance. Mr. O’Brien commented on the fact that Massachusetts is one of the very few states that has not issued a Bulletin on form filing procedures in response to the Terrorism Risk Insurance Act or “TRIA” as well as being one of three jurisdictions that has yet to approve the ISO-TRIA. Mr. O’Brien did state that PCI is hopeful the new Commissioner will have Massachusetts join the rest of the country.
The last question asked when the Massachusetts FAIR Plan was going to raise its rates. To which Mr. O’Brien responded, “Never.” He went on to say that he was not being facetious. In Massachusetts, the “…the FAIR plan’s ability to raise rates is statutorily restricted. “There is no appetite, there has been no appetite, and there will be no appetite on the part of the Massachusetts Legislature to raise rates either.” He concluded by saying that the Massachusetts Legislature doesn’t care where insurance comes from, they just care that it’s there and affordable. So. in his opinion, you are not going to see a change in FAIR Plan rates.
How you can attend the next New England 1752 Club
Named after the year commemorating the birth of mutual insurance in this country, the New England 1752 Club is an organization composed of special agents and other field representatives of insurers doing business in the American Agency System throughout New England’s six states. A direct successor to the “Association of Mutual Fieldmen of New England”, the Club reorganized in 1944 adopting the following mission statement:
“The organization of this club is for the purpose of fostering education, public relations, accident and fire safety, understanding and cooperation; and encouraging free discussion; also for the acquisition and exchange of information to the end that each member may be better qualified to convey to the public the high standards and ethics of the profession of mutual insurance and be better able to effectively serve the interests of their company and its agents.”
As the oldest insurance field association in the country, the New England 1752 Club is another institution that the Massachusetts insurance industry should be proud to have based in the Commonwealth. For those interested in learning more about what the NE 1752 Club does or how you can join, contact Christine Robidoux of Quincy Mutual for more information.