NAIC Moves Rate & Form Model Forward

In an earlier submission to the IS3 group, J. Stephen Zielesienski, assistant general counsel for the Washington-based American Insurance Association, pointed out several provisions of the condensed model act that could use clarification.

He indicated that the most problematic portions of the act are those that appear to give state insurance regulators "virtually unlimited discretion" to consider any factors, even subjective ones, when determining whether a particular insurance market is competitive.

Instead, the AIA would like to see the statutory factors "limited to objective measures of competition," Mr. Zielesienski wrote. But he stressed that these modifications could take place at the individual state level.

Responding to concerns of consumer advocates, Mr. Covington made clear the IS3 groups belief that the condensed act preserves the authority of state regulators to review rates and determine whether they are excessive or adequate.

He also stressed that each state would have to determine how the condensed model act fits into its particular statutory scheme. He added that group members had determined that a condensed version would be easier to fit into such schemes than would be a full model law.

In other business, Mary Bannister, a member of IS3 working group and deputy commissioner with the Virginia insurance bureau, suggested that the group develop a "scorecard" to be used by regulators for each insurance company.

The purpose of the scorecard would be to track whether insurers are using the electronic form-filing systems and checklists put in place by the IS3 and other NAIC groups in the interests of efficiency and modernization. The scorecard also would track the types of mistakes made by insurers on electronic applications.

Mr. Covington gave enthusiastic support to the suggestion, and said that the IS3 group would consider it further as part of its 2002 agenda.

He then reported that by the end of the year, 44 states will be accepting the NAIC's System for Electronic Rate and Form Filing, or SERFF, for p-c filings, and that several major insurers have agreed to pilot programs. Mr. Covington also revealed that 94 percent of all SERFF filings go through on the first submission, and that the average turnaround time for SERFF filings is only 16 days.

Nevertheless, Washington Insurance Commissioner Michael Krieder complained about electronic compatibility problems that his state has had with the SERFF system. As an example, he stated that if his department wants to make changes to a form, it has to print it out, make the changes, and then scan the document back into a computer. Mr. Krieder suggested that the use of the Acrobat PDF format would solve this problem.

After a few other state regulators reported similar problems stemming from the lack of a computer data import/export tool, Mr. Covington assured them that the matter was already being looked into. "Well fix it, I promise you," he said.

The final topic presented to the IS3 group concerned a controversial report prepared earlier this year by the Washington-based Consumer Federation of America. As characterized by the National Association of Independent Insurers and other insurance groups, the consumer advocacy groups report touted California Proposition 103 of 1988 as an example of regulatory measures that helped drive down the cost of insurance for consumers.

To counter that report, the NAII, the AIA, the Alliance of American Insurers and the National Association of Mutual Insurance Companies commissioned their own study of the CFA reports premises and conclusions. The author of the commissioned study–David Appel, a principal with the New York office of Milliman USA, a financial and actuarial consulting firm–testified briefly about his findings. He said:

The "regulatory standards of excellence" set out in the CFA report are "inconsistent with a modern understanding of the role of regulation in a competitive market."

The CFAs purported objective analysis of regulatory results is not buttressed by science and "is fatally flawed."

"Serious analysis" of California insurance premiums reveals that Prop. 103 had no meaningful effect on auto insurance rates in the state.

California consumers might have saved more than $10 billion over the past 10 years under a more competitive market.

In response to Mr. Appels remarks at the IS3 meeting, Birny Birnbaum, a consulting economist and executive director of the Austin, Texas-based Center for Economic Justice, who helped prepare the CFA report, asserted that CFA would have looked at insurance systems in other states had the group been provided with certain data, such as that classified by ZIP code.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 17, 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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