Scrapping N.Y.’s Flex-Rating System Would Worsen Auto Market

June 7, 2001

According to the National Association of Independent Insurers (NAII), a bill to scrap New York’s flexible rating system for insurance rates in favor of a prior approval system would only exacerbate problems in the auto insurance market by reducing competition and increasing the number of motorists in the new York Auto Insurance Plan (AIP).

NAII Associate Counsel Joseph Termini said AB 8940 would be a definite step backward for New York’s auto insurance market.

The NAII pointed to separate research projects conducted by professors at the University of South Carolina, the University of Pennsylvania and Georgia State University that prior approval rate regulation reduces the number of companies in a market, increases the number of policies in residual market plans, and requires regulators to spend an inordinate amount of time approving rates that are ultimately governed by competitive forces in the market.

The present law allows insurers to modify their rates upward or downward by seven percent without requiring the prior approval of the superintendent. AB 8940 would allow insurers to lower their rates by 10 percent without regulatory approval, but would require the Superintendent to approve any rate increases.

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