NAIC Rate Model Under Fire

The National Association of Insurance Commissioners' proposed rate and form model has drawn the opposition of consumer advocates and property-casualty insurance trade groups.

In comments to the Personal Lines Regulatory Framework Working Group, the two groups fault the model for failing to meet the needs of 21st century regulation but oppose the proposal from radically different perspectives.

The National Association of Mutual Insurance Companies called the proposed model a “step backward” in efforts to streamline rate and form regulation.

Marsha Harrison, NAMIC regulatory affairs counsel, noted that the so-called “file and use” system compares unfavorably to the “flex band” system adopted by nine states, and to the “use and file system” adopted by 14 states.

The “flex band” system allows carriers certain leeway within a fixed percentage to raise or lower rates at will without regulatory approval, while the two systems involving filing and using still retain some regulatory oversight to a varying degree for all changes.

In a joint letter from the Washington-based Consumer Federation of America and the Austin, Texas-based Center for Economic Justice, CEJ executive director Birny Birnbaum said the proposed model fails to recognize that new risk classification systems have far more impact on premiums than actual rate schemes.

In addition, the model's requirement that a regulator must find a market “not competitive is a needless barrier to regulatory protection of consumers,” Mr. Birnbaum wrote.

Moreover, competition does not protect consumers when it comes to policy forms. “It is not reasonable to separate out competition for rates from competition for policy forms because any comparison of rates must rely on an understanding of the coverage associated with those rates,” Mr. Birnbaum wrote.

David Parsons, working group chairman and Alabama deputy commissioner, said at the panel's meeting in June that he hopes to have a model ready for adoption by the annual winter meeting in December.

The action on personal lines regulatory reform has returned the issue to the NAIC's front burner after an absence of five years.