david-sampson
David Sampson, president and CEO of APCIA
20 October 2019 Insurance

Erosion of contract certainty and risk-based pricing norms are the biggest worries for APCIA members

The US insurance industry is grappling with the significant erosion of contract certainty because of substantial challenges facing legal due process and other judicial norms, increasing litigation and ever more “nuclear” verdicts; this issue has become the number one priority of members of the American Property Casualty Insurance Association (APCIA).

That is according to David Sampson, president and CEO of APCIA, who told APCIA Today that legal due process and the norms of justice have been under attack for some time but that things have become significantly worse in the past 12 months. On behalf of its members, APCIA is now tackling this challenge on a number of fronts.

“The public seems increasingly receptive to the idea that the responsibility of companies should go well beyond what have been existing legal requirements and accepted laws for a long time,” Sampson said.

“Litigation has been increasing, as have awards, and many of the verdicts go against or beyond the letter of the law and traditional legal norms. That is having a big impact on our members and the marketplace.”

Sampson said these trends amount to a tort tax on US consumers.
“We as a representative body are now working on many fronts to engage with policymakers and other interested parties to create a more stable legal system. We want to restrain inappropriate judicial decisions and create a stable and predictable legal environment which is the basis for both society as a whole and the insurance industry a bedrock of the US economy,” he said.

He added that APCIA is conducting a number of studies to assess the impact of this trend, including examining the impact on claims and settlement in states where attorney marketing is very aggressive, and where so-called nuclear verdicts (jury awards where penalties exceed $10 million) are becoming more common.

“The long-term impact of this is that as legal costs increase, so will product costs,” Sampson said. This is a key issue that will be addressed at the conference in a Monday session called ‘The rule of law in the new era of social justice’, which will feature a panel of legal experts including The Hon. Kurtis Wilder, Michigan Supreme Court Justice (retired), and The Hon. Stephen Markman, Michigan Supreme Court Justice.

Risk-based pricing
Sampson said the second major issue on the agenda of the APCIA is protecting the use of risk-based pricing which, he said, is under attack on many fronts in several states, in particular California, New Jersey, Maryland, Illinois and Michigan.

He said that accepted actuarial norms and some of the new, technology-driven solutions around pricing are being disputed and even outlawed in some parts of the US. Some of the traditional actuarial methods under threat include credit-based scoring and the use of other rating factors to determine premium.

He said the trend is driven partly by an element of naïvety in some states around the importance of risk-based pricing, and partly by a growing sense in society that is emphasising a particular view on values such as social justice and fairness. This can lead to concerns that assessing a risk using certain criteria amounts to unfair discrimination.

“The outcome is the restriction of actuarially sound methods and norms, which the industry has been using effectively for decades. On top of this there is a resistance to the use of some innovations on this front, such as technology,” Sampson explained.
“Yet this is what insurers do they assess a risk and set pricing accordingly. When that happens, the insurance markets are healthy and vibrant and function efficiently.
“For us, it is a question of educating people and explaining the importance of such tools and how they help the insurance market function efficiently.”

Another big issue on the agenda of the APCIA is the renewal of the Terrorism Risk Insurance Act (TRIA), which expires at the end of 2020. Sampson said the body wants it to be extended in its current form and welcomed the fact that a hearing was held to discuss the possibility of extending it for 10 years, the week before the annual conference in Boston.

“TRIA is critical to the nation’s economic security. It is a fiscally responsible programme and essential to continued economic and commercial growth. Failure to reauthorise the programme could have significant economic implications for taxpayers.
“The time for Congress to act is now, to avoid uncertainty and disruptions and confusion in the marketplace, similar to what we experienced after Congress failed to act in 2014,” he concluded.

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