Two consumer watchdog groups roundly criticized insurance regulators for considering a loosening of personal lines insurance regulations, which the organizations said would only benefit insurers.

The Consumer Federation of America and the Center for Economic Justice jointly released a report criticizing portions of a National Association of Insurance Commissioner's working group report that they said would do little to improve regulation of the lines.

The 44-page analysis said the working group report would prod states "to move toward less regulatory oversight of personal lines insurance, using the euphemism of 'more competitive regulatory framework' because of the glaring failure of deregulation and 'principles-based' regulation of insurance and financial markets and because the conclusion is unsupported by the narrative of the report."

The group said the NAIC's group ignores "overwhelming evidence" that "less regulatory oversight does not equate to more 'competition.'"

The report illustrated how the securitization debt instruments that got many financial institutions in trouble were the result of a deregulated environment that produced "irrational actions and catastrophic results."

The report goes on to criticize the concept of principles- rather than rules-based regulation, saying the concept is that "market forces and rational behavior from market participants will protect consumers and promote beneficial competition. Yet, the 'principles-based' approach to regulation failed spectacularly in the mortgage and financial markets, as finally admitted by the scheme's biggest proponent, Allan Greenspan."

The groups recommended that the NAIC adopt a model law that sets clear responsibilities for the regulator directly related to protecting consumers and "promoting beneficial competition."

It should also promote an "essential financial security tool through the spreading of risk and promoting loss prevention."

Personal lines, the report goes on to say, should be subject to prior approval and would give the insurance commissioner more responsibility over collecting and disseminating information to make proper rating decisions.

The NAIC was not immediately available for comment because of a Martin Luther King Day closing

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Consumer Groups Critical Of NAIC On Personal Lines Changes

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