House Panel Hears Competitive Rating Issue

By Steven Brostoff, Washington Editor

NU Online News Service, April 10, 12:25 p.m. EDT,Washington?Competitive rating for auto and homeownersinsurance provides more choices and better rates for consumers thanprior approval rating, witnesses said at a House Financial ServicesSubcommittee hearing.

"The price controls of a long obsolete, anticompetitivemarketplace are antithetical both to the needs of today's consumersand to American public policy," former Illinois Insurance DirectorNathaniel S. Shapo said.

Mr. Shapo, who is now an attorney in the Chicago office ofSonnenschein, Nash & Rosenthal, cited Illinois' free marketrating system, which does not empower the insurance commissioner toreview and challenge prices for auto and homeowners insurance, as amodel for the rest of the nation. The Illinois model, he said,produces abundant supply and empowers consumers to effectively shopfor the coverage they need at prices they can afford.

Ernst Csiszar, the insurance director for South Carolina, addedthat the experience in his state reflects this as well. He notedthat in March of 1999, a competitive rating law took effect inSouth Carolina. In a little over four years, the new law hasproduced many marketplace changes, Mr. Csiszar said.

For example, he said, the number of insurers in the SouthCarolina market increased from 78 in 1996 to 165 as of about onemonth ago. The state's residual market decreased from over 600,000policies in 1999 to about 340, he added.

Moreover, he said, no insurance company has more than 25 percentof the market. Finally, he said, South Carolina's ranking accordingto the National Association of Insurance Commissioners' AveragePremium Expenditures Report has improved.

"South Carolina and Illinois are good examples of howcompetitive rating models, when accompanied by appropriateregulatory oversight and market monitoring, work efficiently," Mr.Csiszar said.

Rep. Richard Baker, R-La., who chairs the Financial ServicesCommittee's Subcommittee on Capital Markets and Insurance, saidthat the regulatory system in a given state affects theavailability and affordability of insurance.

"There is a literal maze of regulatory structures out there, andwe want to find out which ones actually give consumers the mostchoices and help make it easier for them to find the best product,with the best service, at the best possible price," Rep. Bakersaid.

Rep. Mike Oxley, R-Ohio, who chairs the full Financial ServicesCommittee, agreed. "When wrong-headed regulation drives outcompetition and leaves consumers unprotected, it is time to examinewhether the means is achieving an appropriate end," he said.

The Financial Services Committee is expected to hold a series ofhearings this year on different aspects of insurance regulation,but it is unclear whether it will take a regulatory reforminitiative.