PHILADELPHIA--Consumer advocates and industry representatives clashed yesterday over the role of regulators in insurance and debated the advantages of strong, effective regulation versus regulation that relies more on competition and market-based solutions.

Their differing views were exposed at the CPCU Society Annual Meeting and Seminars.

Travis Plunkett, legislative director of the Consumer Federation of America (CFA), argued regulation and competition should not be at odds with each other.

He said regulation and competition have the same goals: wide availability and good coverage at the lowest possible price, consistent with a fair return for insurers.

A recent CFA study, said Mr. Plunkett, found that states with effective regulatory regimes have accomplished this balancing act, and he cited California as an example. States with effective regulation, he said, have spurred competition, kept rates low and have resulted in profitable insurance companies.

Conversely, he said, states with weak regulatory regimes have seen more market concentration, higher rates and unjustifiable industry profits.

He said the study also found that in states that require pre-approval of rates, rates over the last 20 years have risen more slowly than states that do not require pre-approval. Pre-approval states also performed well in competitiveness and in generating profits for insurers, he added.

Mr. Plunkett stressed that both regulation and competition can be abused. Regulators' refusal to approve necessary rate increases over many years is regulatory abuse, he noted.

Insurers developing rating schemes that adversely affect lower-income consumers is abuse of competition, he said. As an example, he mentioned that in Florida, reinsurance costs that were passed through to consumers turned out to be five to ten times more than reinsurers' own internal models said they should be.

He also criticized the industry for not focusing on creative new ways to lower risks. He said the industry used to have a strong track record of this, but today it has moved toward the use of classes that do not allow consumers to take steps to improve safety and lower their rates. He cited credit scoring, education and occupation, and previous liability limits as examples.

John Lobert, senior vice president, State Government Relations for the Property Casualty Insurers Association of America (PCI), countered that less government involvement and healthy competition is a more effective way to regulate the industry.

He said when insurance regulation first came about, there were serious problems in insurance, such as companies that were not capitalized and agents selling policies that were not represented by any companies. Regulation was needed, he explained, to make sure promises were kept.

Today, though, Mr. Lobert said insurers are still viewed as "bad guys," and he called on regulators to stop viewing the industry that way. He said that no insurance company could succeed by having a reputation of mistreating policyholders.

Companies may get away with bad practices for a little while, he said, but they will quickly lose market share, agents and business. He conceded that the market does experience occasional hiccups, and sometimes there are bad individuals in the industry, but overall, he said insurance companies have nothing to gain by being bad guys.

Regulators, Mr. Lobert said, should concentrate on making sure insurers fulfill their promises. Beyond that, he called a competitive marketplace the best regulator of price.

He said that much of the market dysfunction that does occur is because of actions by courts, legislators and regulators. These actions lead to sudden environmental liabilities, bad faith laws, or bad exposures that impact the industry, Mr. Lobert said.

Other panelists--including James Byrd, from the South Carolina Department of Insurance, and Tom Ahart, president of Ahart Frinzi and Smith, a New Jersey-based agency--supported market-based approaches to regulation by talking about how harmful overregulation adversely impacted the market in their respective states.

Insurers, they said, began to leave both states because of restrictive markets that imposed such rules as "take all comers," and, in New Jersey, an "excessive profits" law. They explained how encouraging competition and allowing companies to bring their rating strategies to the market led to more comprehensive coverage, lower rates and more choices for consumers.

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CFA, PCI Reps Clash On Role Of Regulation

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