WASHINGTON, D.C.–Recommendations for rate regulation reform were found wanting during a meeting of a working group on the subject at the National Association of Insurance Commissioner's summer meeting here.
The Personal Lines Market Regulatory Framework working group put forth what is known as a file and use program, which allows companies, theoretically, to set their own rates and give regulators the opportunity to rescind them if they are later determined to be out of line.
But insurance industry representatives decried the plan as one more prior-approval scheme. The representatives argued that no company would want to set rates that could be withdrawn because they might then be forced to refund the additional charge.
Birny Birnbaum, consumer activist and director of the Austin, Texas-based Center for Economic Justice, said the model fails to address the real drivers of rates such as classification schemes that, he contends, have now grown in complexity and allow companies the opportunities to enrich themselves without formal rate increases.
Alabama Insurance Commissioner David Parsons, chairman of the working group, said he hopes to go over the document with interested parties in the next six months and have a final model ready for approval at the December meeting.
Rey Becker, vice president of the Des Plaines, Ill.-based Property Casualty Insurers Association of America, called the whole process “irrelevant.”
“We will submit comments, but we think the whole process misses the point,” he said.
The industry is pursuing the so-called Illinois model in which there is no rating law for either personal or commercial lines.
While Mr. Becker and others admit that such a plan has not gained approval in other states, they have seen other plans, including enactment of halfway measures such as flex rating laws in which carriers have a certain leeway within a defined percentage to set their own rates.
American Insurance Association representative Stef Zielezienski said the NAIC's failure to embrace open competition is one more reason to push for the optional federal charter proposal. Current legislation in the U.S. Senate would provide such a plan.
Both p-c association representatives said they would work to make the model a better one in the next six months, but doubted their groups would support anything like it if it should ever be approved by the NAIC and go to states for enactment.
Mr. Birnbaum said the model's premise that competition best serves the consumer is flawed.
“It does not protect us from unfair risk classifications such as those brought about by credit scoring and other factors. And we know that competition is not an effective regulator for policy forms,” he said.
The model would incorporate previous models the NAIC has passed concerning commercial rate deregulation.
Personal lines deregulation was relatively high on the regulators' radar screen following passage of the Gramm-Leach-Bliley Act, which opened up the financial services sector for all players. But it quickly vanished in the wake of the 9/11 attacks and the subsequent market hardening that took place.
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