NAIC Task Force Votes Down Bid To Ease Rate Regulations

NU Online News Service, April 17, 3:20 p.m. EDT

A National Association of Insurance Commissioners task force voted yesterday to continue using existing model laws as guidelines for a personal lines regulatory framework and rejected a bid for a less restrictive system.

In a conference call meeting, the NAIC Speed To Market Task Force, part of the Executive Committee, considered adopting a Nov. 20, 2008 draft paper on the "most appropriate regulatory framework for personal lines insurance products," prepared by the Personal Lines Market Regulatory Framework Working Group.

The paper contained three recommendations for the NAIC Property and Casualty Insurance Committee to consider.

Both the American Insurance Association (AIA) and the Consumer Federation of America (CFA) were looking for "no" votes from the task force, but for different reasons.

The AIA felt the paper itself contained language that was anti-competitive, while the CFA disagreed with a recommendation suggesting states move toward a more competitive regulatory framework.

Dave Snyder, of the AIA, said the NAIC began to address the idea of a more uniform and modern rate regulatory approach years ago, but he said the effort has since gone off track and has become "almost unrecognizable" from the original intent.

He said the paper did not strongly enough support the efforts of individual states that have moved to a more competitive regulatory framework that permits such things as rate changes without prior approval within certain flex-band parameters. Mr. Snyder said the paper instead justified "anti-competitive prior approval regulation."

The AIA took issue with several points raised in the paper, including one which stated that because personal lines insurance products are complex, it is not clear if consumers have sufficient information to make good insurance buying decisions.

Mr. Snyder said consumers do not necessarily know how their car engines or iPods work, but there is no price-fixing for those products.

Bob Hunter, of the CFA, meanwhile, said he agreed with points raised in the paper that competition alone cannot be relied upon to regulate the industry.

However, the paper contained three recommendations. The first would make three existing model laws guidelines to be used as a resource on regulating personal lines. The second recommendation asked the NAIC Property and Casualty Insurance Committee to "examine the effects of data mining and the resultant detailed risk classifications now being used for underwriting, tier placement and rating."

The third recommendation, which the CFA opposed, suggested states with "less than adequate degrees of competition" consider competitive regulatory frameworks such as flex-rating.

A joint CFA/Center for Economic Justice (CEJ) statement said the recommendation contradicts many of the findings of the white paper on which the recommendation is based.

Ultimately, the NAIC task force voted to accept but not adopt the paper. Mr. Snyder said this means the paper will be available for viewing but will not represent an official NAIC position.

The task force also voted to adopt only the first recommendation to use the existing model laws as guidelines.

Mr. Hunter said he likes having the paper available, but said the three model laws cited by the recommendation "are somewhat at odds," meaning the NAIC is offering guidance that goes in different directions.

Mr. Snyder said the task force made a good decision to not adopt the paper, based on the final draft.