Former governor and RNC head, Racicot busy as insurers’ hired gun

As hired guns go, Marc Racicot was a Colt .45 when he took the job of president of the American Insurance Association (AIA): straight-shooting and capable of stopping legislative villains dead in their tracks.

That was back in August 2005, when the industry’s top priority was convincing a skeptical Republican Congress to renew the Terrorism Risk Insurance Act (TRIA), passed after the Sept. 11 terror attacks. The former chairman of the Republican National Committee (RNC) and two-term Montana governor, Racicot was well-suited to persuade fellow conservatives of the need for a federal backstop for insurers against terrorist acts.

Not a month into his job, Hurricane Katrina slammed into the Gulf Coast, saddling the insurance industry with billions in claims and opening it up to a wave of litigation and attacks from politicians. Sen. Trent Lott (R-Miss.), whose Pascagoula home was ravaged by the storm, soon emerged as the unlikely scourge of insurers. Then Congress flipped to the Democrats, shrinking Racicot’s influence just as his job swelled to mighty proportions.

Yet Racicot seems unfazed by the turn of events. “I can’t deny that I was visible in politics and that may have been a reason [I was chosen for the position],” he said in a recent interview with The Hill. “But I like the job because it is important and substantive … Frankly, it’s the closest thing to public service that I’ve done, except for actual public service.”

Racicot will have his hands full fending off multiple threats to insurers this year. The industry has been attacked in a number of Capitol Hill hearings for fraudulently denying claims to Gulf homeowners. Two House lawmakers are working to institute a national catastrophe reinsurance program that would be linked to a reduction in homeowner rates in disaster-prone regions, an idea that property and casualty insurers are nearly united against. And then there is the Lott factor.

The Mississippi senator has introduced legislation that would repeal insurers’ partial exemption from federal antitrust law. The bill has secured the support of Senate Majority Leader Harry Reid (D-Nev.) as well as the backing of the chairman and ranking member of the Judiciary Committee, Sens. Patrick Leahy (D-Vt.) and Arlen Specter (R-Pa.) respectively. Lott has also threatened to go after the industry’s tax treatment. And several insurance executives fear he will try to hold up the extension of TRIA, which was renewed for two years in 2005 and is set to expire again at the end of this year.

In sharp contrast to other insurance lobbyists, Racicot denies being particularly troubled by Lott. “He suffered terrible personal tragedy and he suffered vicariously on behalf of all the people in Mississippi,” he reasoned. “I think he’s capable of putting these issues in a light, because of his personal and official experiences, that would allow him to get some important things done for the country.”

In particular, Racicot hopes that Congress will shore up the national flood-insurance program, which is $20 billion in the hole after Katrina. Another goal is to extend TRIA, which remains the chief concern of AIA’s members. The trade group represents 400 insurance companies, including some of the largest property and casualty insurers in the country.

For Racicot, a renewal of TRIA is, ironically, an easier sell now thanks to the changeover in Congress, as Democrats are less leery of involving government in the insurance markets. Yet the legislation still faces an uphill battle due to the uncertain support of the Bush administration.

Racicot disputed the idea that the White House opposes a federal backstop for terrorism risk. “The notion that they’re against it, I just don’t agree with,” he said, although he acknowledged there is “a burden of proof on our shoulders.”
But before he can achieve these legislative goals, the AIA president will have to overcome some of the mistrust of the industry.

Racicot said he has grown weary of the “constant berating of an industry” that he believes has responded “exceptionally well” to its clients in the aftermath of Katrina. He scoffed at accusations made by consumer advocates and other critics that insurers colluded to cheat homeowners out of claims in the aftermath of the hurricane. “It’s reckless. They’ve offered no proof,” he said. “They ought to be more prudent and circumspect.”

Meanwhile, the insurance industry’s record of backing Republicans over Democrats could come back to haunt it as it pushes its agenda on Capitol Hill this year. AIA’s political action committee plowed roughly $200,000 to federal campaigns in each of the 2004 and 2006 cycles, with about three-quarters of the total going to Republican candidates.

Racicot argued that AIA’s political contributions in the last two cycles were appropriate given that the leadership in both houses was Republican at the time. Going forward, AIA’s giving will continue to focus a good bit on leadership, he said, which will mean a boost in support to Democrats in the 2008 cycle.

As a politician with limited experience with insurance issues, Racicot admits he has had a steep learning curve the last 18 months. “I was not an insurance expert. It’s a very complex area,” he said.

But the Montana Republican has a proven ability to reach out to opponents and build the type of coalitions that are so crucial for the industry these days, argued Robert Hartwig, the president of Insurance Information Institute.
“You don’t get to be governor or head of the RNC if you don’t have these kinds of skills,” he said.