Connecticut Okays Flex Rating

Industry trade groups said they expect Connecticut Governor M. Jodi Rell to sign a bill approved by the legislature yesterday that permits insurers to change personal lines rates within certain limits without regulatory permission.

Insurer organizations said passage of the flex-rating legislation would create a more competitive insurance market, giving consumers greater access to more products at lower prices.

In expectation the bill would get the governor's signature, the Connecticut Insurance Department said it believes the bill strikes a reasonable balance by allowing for a 6 percent rate band.

“Adequate enforcement authority is also maintained by giving the commissioner the continued authority to determine whether a filing is inadequate or unfairly discriminatory,” said the department. “We will be analyzing our rate filing process in light of this new law to determine where added review efficiencies might be realized.”

Connecticut's Assembly passed the measure, Senate Bill 410, on a 144-1 vote. The legislation provides flex-rating for personal lines insurance with a 6 percent flex band and a three-year sunset.

It also includes provisions relating to uninsured/underinsured motorist coverage relating to requirements insurers may impose for such coverage to be accessed.

Kristina Baldwin, regional manager and counsel at the Property Casualty Insurers Association of America, said the bill is a step to help consumers because “a flex-rating system allows insurers to respond to competitive market conditions and determine appropriate rate level changes. This system is beneficial to insurance consumers as prices are more stable.”

Flex-rating enables insurers to implement rate changes within a percentage band without approval from the regulator, but ensures that larger changes must still undergo regulatory review before going into effect, she noted.

Under Connecticut's current prior-approval systems, all rates and rating plans must be filed and approved before going into effect. According to PCI, these systems often make the insurance marketplace less competitive than it could be if it operated under a more streamlined approach.

“On average, auto insurance premiums are 10 percent lower in states with flex rating or open competition than in states which require prior approval of rates,” said Ms. Baldwin. “In addition, under flex rating, premiums are more stable because insurers are more likely to contain rate changes to the flex band if possible, so as to avoid burdens associated with prior approval.”

Laura Kersey, assistant vice president for the Northeast Region at the American Insurance Association, echoed Ms. Baldwin's comments, saying the bill will allow insurers to quickly respond to market conditions and foster greater competition, thus benefiting consumers.

She said Republican Gov. Rell is expected to sign the measure into law.

When testimony was taken on the bill, AIA said flex-rating should free insurance department staff “to devote more time and resources to other issues, such as reviewing insurer solvency and insurer policy form filings.”

“Flex-rating has achieved positive market expansion in states where it has been enacted, such as Louisiana and South Carolina,” said AIA, noting that Alaska, Kentucky and Rhode Island have also adopted flex rating provisions.

The National Association of Mutual Insurance Companies said it supported an earlier version of the legislation, which would have enabled insurers to adjust rates within a 12 percent band.

NAMIC noted that at one point, lawmakers lowered the flex band to 4 percent and proposed a two-year sunset, which NAMIC said would have threatened the effectiveness of the measure. NAMIC said the current measure was passed after lobbying efforts by its advocacy partner, the Insurance Association of Connecticut.

Although the governor is generally expected to sign the measure, a spokesman for Gov. Rell, David Dearborn, would say only that she had not taken a position on the bill, “which will be reviewed in detail when it reaches the governor's desk.”

Article updated 9:27 a.m. May 3