Orlando, Fla.–State regulators after years of inaction on theissue could shortly approve a measure to deregulate rate settingfor personal insurance lines, an Alabama regulator said.

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Deputy Alabama Commissioner David Parson, who chairs thePersonal Lines Market Regulatory Framework Working Group, said sucha measure could gain approval within the next few months.

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Speaking yesterday at the group's session during the springmeeting of the National Association of Insurance Commissioners, Mr.Parsons said such a relatively speedy outcome could be possible ifthe panel used the model developed by regulators in 2000 but thenabandoned.

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The action caught both regulators and industry representativesby surprise as there has seemingly been little appetite by the NAICin the past few years to grapple with the hot-button issue ofpersonal lines rate deregulation.

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While there was some movement following the flurry of activityin the aftermath of the passage of the federal Gramm-Leach-Blileyfinancial disclosure act in 2000, the issue went on the back burnerafter the 9/11 terrorist attacks that roiled the marketplace.

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Mr. Parsons told National Underwriter after the session that theissue arose almost by chance as some regulators agreed that withthe life sector side of rate and form regulation coming to fruitionwith the progress of an interstate compact, the time was ripe toaddress the property-casualty aspect.

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But if industry representatives have their way, the regulatorswill take more time and abandon the current draft model to considerone that embraces free market principles more forcefully.

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The 2000 model uses what is called a “file and use” system thatin the spectrum of rate regulation regimens ranks just after thetwo most government-centered approaches of prior approval or the“fix and establish” method now set in Massachusetts.

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Neil Alldredge, senior state advocacy director of the NationalAssociation of Mutual Insurance Companies, said the “file and use”approach would not represent much of an improvement over thecurrent system.

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“This bears out in those states that have 'file and use' but inreality it becomes almost prior approval since carriers would bereluctant to use the rates before the regulators approved them forfear of having to go back,” he said.

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Mr. Alldredge said those states that have adopted rateregulation reform in the past few years have not looked to the NAICfor guidance, but rather the National Conference of InsuranceLegislators, who have adopted a model law that calls for freemarket setting of personal lines rates.

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“I think you are better off not doing anything than adoptingsomething akin to what is on the table today,” Mr. Alldredgesaid.

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He also noted that uniformity is not that much of an issue forpersonal lines insurers compared to the life insurance sector asrate freedom.

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NCOIL has adopted what is called “flex rating” for those statesnot willing to embrace a total market approach that allows carriersa certain percentage of leeway to raise or lower rates withoutprior approval.

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Like most regulation reform debate these days, the specter offederal regulation loomed large in yesterday's discussions.

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The proposal currently being eyed in the U.S. House ofRepresentatives, known as the State Modernization and RegulatoryTransparency [SMART] Act, would impose federal standards on stateregulation, and when it comes to personal lines deregulation wouldrequire a virtually free market regimen after a transition periodof flex rating.

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Wes Bissett, senior vice president of the Independent InsuranceAgents and Brokers of America, said that whatever pressure there isin Congress to take over insurance regulation comes from industrycomplaints that the current rate regulation system stiflescompetition too much. “What Congress has heard are that the lawsare too antiquated,” he said.

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He also said insurance regulation reform is among the top ofpriorities of the House Financial Services Committee this year.

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Mr. Parsons said he was not all that impressed by the federaltakeover threat argument. “If Congress wants to regulate insurancethey are going to do it, regardless of what we do,” he said.

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The deputy commissioner said the NAIC sentiment remained forkeeping some sort of regulatory lid on rates, which was not evidentin the largely pro-industry contingent at the sessionyesterday.

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Birny Birnbaum, of the Austin, Texas-based Center for EconomicJustice, represented the only nonindustry voice at the session. Heurged panelists to put their focus beyond mere rate-setting to alsoinclude risk classification and other underwriting criteria. “Inthis day and age that is where the action is,” he said.

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John Pedrick, Ohio insurance department regulator and workinggroup member, was not quite so willing to dismiss the federalthreat as his Alabama colleague.

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“What we have to do is try and figure out the least amount ofregulation we can put in this bill and still accomplish what wemean to accomplish,” he said.

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Mr. Parsons said a conference call would be set for sometime inthe next month that would help measure the regulator sentiment forthe degree of rate regulation that should remain in any NAICmodel.

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