State Regulatory Delays Decried


Unnecessary rate and form regulation is forcing consumers to spend more than necessary for insurance and harming the competitive position of property-casualty insurers, representatives of insurance company associations told Congress last week.

At a U.S. House of Representatives subcommittee hearing on efforts to streamline the state insurance product approval process–known as the “speed to market” initiative–industry witnesses said there is a growing frustration with regulatory delays in many states.

“We are hearing from our members unprecedented levels of concern regarding the regulation of rates and forms in many states and how it is hurting competition,” Robert L. Zeman, vice president with the National Association of Independent Insurers, testified before the House Financial Services Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises.

“The reality is that insurance markets have evolved at a much faster pace than insurance regulation,” added Mr. Zeman, who testified on behalf of both the Des Plaines, Ill.-based NAII and the Alliance of American Insurers, headquartered in Downers Grove, Ill.

James A. Blum, chairman of Fort Wayne, Ind.-based Brotherhood Mutual, said that too many states continue to rely on protracted prior approval processes that obstruct, or effectively bar, the marketing of innovative products in a timely fashion.

“Prior approval frequently takes months to secure, costing insurers valuable marketing opportunities and depriving consumers of the advantages of new and improved risk-sharing products,” he said on behalf of the Indianapolis-based National Association of Mutual Insurance Companies.

“The length of the prior approval process also inhibits the ability of insurers to compete successfully with other, less regulated segments of the financial services industry,” Mr. Blum said.

Robert Gowdy, president of Boston-based OneBeacon Insurance Group, cited the state of Illinois as an example of the benefits of competitive rating. Illinois, he said, has had a competitive rating system since 1978. Because of population and traffic density, the presence of a large metropolis, and other factors affecting losses, Illinois would normally be expected to rank among the top 10 states for auto insurance costs, Mr. Gowdy said.

However, he said, Illinois perennially ranks in the middle, between 24th and 26th, among states for auto insurance prices, and competition has been a key factor.

In addition, Mr. Gowdy said, companies using alternative risk-transfer mechanisms–such as self-insurance, captives or risk retention groups–do not have to deal with the complexity and delays of the varied multistate approval system. “In contrast, insurers operating in traditional markets are at a cost disadvantage, and consumers lose out by having to pay higher prices and having fewer choices,” he said.

Mr. Zeman said that both legislative and operational changes are needed. On the operational side, he said, many states are beginning to move toward more efficient regulatory practices.

However, Mr. Zeman said, there are concerns. “While some changes are being made in some states on process and procedure, the need to deal with mindset and regulatory culture remains in several others,” he said. “Changing this culture and mindset will take time.”

On the legislative side, Mr. Zeman called for competitive rating laws that would limit regulatory intervention to instances where a market is considered non-competitive.

Mr. Blum noted that NAMIC supports efforts by the Kansas City, Mo.-based National Association of Insurance Commissioners to reform regulation. However, he said, it is unrealistic to hold NAIC solely accountable for reform.

“Given the non-binding nature of the NAIC, I would submit that the more powerful players in any struggle for state regulatory modernization are the men and women who write the laws in the countrys 50 state capitals and the District of Columbia,” Mr. Blum said. “Or to borrow an old saying, The NAIC proposes but the legislature disposes.”

However, Mr. Blum said there is unparalleled unity of purpose among the industry and policymakers on regulatory reform.

“Given the opportunity to advocate this message strongly, clearly and persuasively, we have a fighting chance to succeed,” he said.

(Due to timing and deadline issues, National Underwriter was unable to obtain all the testimony from the hearing by press time. An article on the testimony by the NAIC, consumer representatives and other insurance industry groups will appear in next week’s edition, as well as on NU’s Online News Service at

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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