A session to discuss guidelines used by insurers to ratecustomer risks turned into a debate between consumer and industryrepresentatives over redlining allegations at last week's meetingof the National Association of Insurance Commissioners.

Redlining–the controversial practice of refusing coverage to ageographic area because of its racial, ethnic or economicmakeup–became an issue at a hearing conducted by the NAIC MarketConduct Committee to discuss whether a review of insurerunderwriting and risk classification guidelines is needed.

“If it ain't broke, don't break it,” said David Snyder,assistant general counsel of the American InsuranceAssociation.

But consumer representatives, such as Bernie Birnbaum of theCenter of Economic Justice and Connie Chamberlin of HousingOpportunities Made Equal of Virginia, disagreed. “There aresubstantial levels of discrimination and redlining in the personallines insurance marketplace,” Ms. Chamberlin charged, asking theNAIC to encourage its members to “use proven methodologies todetermine the extent of insurance discrimination.”

Mr. Snyder said evidence of a thriving insurance market in urbanareas belies any claim of redlining or discrimination againstcertain neighborhoods. “With fewer than 2 percent of auto insurancein residual markets–the largest line of insurance coverage–we callupon the NAIC to reject demands for more controls over riskclassification, so that recent progress can continue to be made onserving customers in all areas, including urban markets,” hesaid.

Don Cleasby, vice president of the Property Casualty InsurersAssociation of America, said the common flaw of consumer groupstudies is they do not take loss costs into account.

“After analyzing decades of loss experience, insurance companieshave determined that the geographical location of where the vehicleis garaged and where the dwelling is located is one of the mostpredictive variables in determining insured loss expectancy,” hesaid.

Mr. Birnbaum urged the panel to evaluate the impact of new riskclassifications, and recommend solutions to any identified problemsin personal lines availability, affordability and fairness.

“We also think the regulators should identify potential problemswith risk classifications that involve unfair discrimination andinsurance availability and affordability issues,” he said.

North Dakota Commissioner Jim Poolman said the group willevaluate the testimony over the next few weeks to see what actionsmight be taken in 2007.

Meanwhile, the NAIC took no action here to move ahead with ratederegulation for personal lines. At a meeting of the Personal LinesRegulatory Framework Working Group, regulators could not agree onmodel regulation and legislation that would grant more rate freedomfor insurers.

The regulators will continue over the next few weeks to try toreach a consensus on what rate regulation package could pass.

AIA's Mr. Snyder called the work of the panel this year a“missed opportunity.”

“What began as an NAIC initiative to update personal lines rateand form regulation by injecting competition into the system, hasdeteriorated into a rhetorical defense of the most intrusive andanticompetitive forms of regulation now being practiced in somestates,” he said.

In 1999, following passage of the federal Gramm-Leach-BlileyFinancial Modernization Act, the NAIC appeared open to exploringthe issue of personal lines rate deregulation after approving avariation of it for commercial underwriters.

But following the Sept. 11, 2001 terrorist attacks and thesubsequent sharp spike in rates, enthusiasm for deregulation seemedto dampen. Some states have introduced “flex rating” systems thatallow insurance rate changes within certain percentages as a sortof introduction to rate freedom.

Meanwhile, the National Conference of Insurance Legislators hasapproved a model statute for personal lines rate deregulation and aflex rating measure as an alternative.