State insurance commissioners, after years of inaction on the issue, could approve a measure relatively soon to deregulate rate-setting for personal lines, although insurers are not necessarily thrilled at the prospect. Deputy Alabama Commissioner David Parsons said such a measure could gain approval within the next few months.
Such a relatively speedy outcome could be possible if the panel used the model developed but then abandoned by regulators in 2000, said Mr. Parsons, speaking here last week during the quarterly meeting of the National Association of Insurance Commissioners.
The action caught both regulators and industry representatives by surprise, as there has seemingly been little appetite by the NAIC in the past few years to grapple with the hot-button issue of personal lines deregulation.
While there was some movement following the flurry of activity in the aftermath of the passage of the federal Gramm-Leach-Bliley financial disclosure act in 2000, the issue went on the back burner after the 9/11 terrorist attacks that roiled the marketplace.
Mr. Parsons–who chairs the NAIC's Personal Lines Market Regulatory Framework Working Group–told National Underwriter after the session the issue arose almost by chance as some regulators agreed that with the life-sector side of rate and form regulatory changes coming to fruition with the progress of an interstate compact, the time was ripe to address the property-casualty side.
However, if industry representatives have their way, regulators will take more time and abandon the current draft model to consider one that embraces free-market principles more forcefully.
The 2000 model uses what is called a "file and use" system, that in the spectrum of rate regulation regimens ranks just after the two most government-centered approaches of prior approval and the "fix and establish" method now set in Massachusetts.
Neil Alldredge, senior state advocacy director of the National Association of Mutual Insurance Companies, said the "file and use" approach would not represent much of an improvement over the current system.
"This bears out in those states that have 'file and use,' but in reality it becomes almost prior approval since carriers would be reluctant to use the rates before the regulators approved them for fear of having to go back," he said.
Mr. Alldredge said those states that have adopted rate regulation reform in the past few years have not looked to the NAIC for guidance, but rather the National Conference of Insurance Legislators, which has adopted a model law that calls for free-market setting of personal lines rates.
"I think you are better off not doing anything than adopting something akin to what is on the table today," he said.
NCOIL has adopted what is called "flex rating" for those states not willing to embrace a total free-market approach, instead allowing carriers a certain leeway to raise or lower rates without prior approval.
Like most debate over regulatory reform these days, the specter of federal regulation loomed large in last week's discussions.
The proposal being eyed in the U.S. House of Representatives–known as the State Modernization and Regulatory Transparency (SMART) Act–would impose federal standards on state regulation, and when it comes to personal lines deregulation, would require a virtually free-market regimen after a transition period of flex-rating.
Wes Bissett, senior vice president of the Independent Insurance Agents and Brokers of America, said whatever pressure there is in Congress to take over insurance regulation comes from industry complaints that the current rate regulatory system stifles competition too much. "What Congress has heard is that the laws are too antiquated," he said, adding that insurance regulatory reform is among the top priorities of the House Financial Services Committee.
Mr. Parsons said he was not all that impressed by the federal takeover threat argument. "If Congress wants to regulate insurance, they are going to do it, regardless of what we do," he said.
John Pedrick, Ohio insurance department regulator and working group member, was not quite so willing to dismiss the federal threat as his Alabama colleague. "What we have to do is try and figure out the least amount of regulation we can put in this bill and still accomplish what we mean to accomplish," he said.
Mr. Parsons said the NAIC sentiment remained for keeping some sort of regulatory lid on rates, which was not evident in the largely pro-industry contingent at the session here last week.
Birny Birnbaum, a consumer advocate with the Austin, Texas-based Center for Economic Justice, represented the only nonindustry voice at the session. He urged panelists to put their focus beyond mere rate-setting to also include risk classification and other underwriting criteria. "In this day and age, that is where the action is," he said.
Mr. Parsonss said a conference call would be set for sometime in the next month that would help measure regulator sentiment for the degree of rate regulation that should remain in any NAIC model.
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