PCI Testifies in Support of Flex Rating for Conn. Consumers

March 3, 2006

Connecticut consumers will benefit from increased competition, which puts downward pressure on insurance premiums, if the Legislature moves the state’s insurance regulatory system from prior approval to “flex rating,” according to the Property Casualty Insurers Association of America (PCI).

Flex-rating systems enable insurers to implement modest rate changes within a percentage band without approval from the regulator. However, it ensures that larger changes undergo regulatory review before going into effect.

Under the current prior approval systems, all rates, rules and rating plans must be filed and approved before going into effect. These systems often reportedly make the insurance marketplace less competitive than it could be if it operated under a more streamlined approach such as flex rating.

PCI testified in support of HB 5463 during the Insurance and Real Estate Committee hearing on Thursday. This legislation is based upon the National Conference of Insurance Legislators’ (NCOIL) Property/Casualty Flex-Rating Regulatory Improvement Model Act and contains a 12 percent flex band.

“Consumers benefit from the positive impact that flex rating has in the eight states that operate under this type of insurance regulatory system,” said Kristina Baldwin, regional manager and counsel for PCI. “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. 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 the burdens associated with prior approval. Flex rating also promotes premium stability because flex rating allows companies to quickly react to market conditions, thereby preventing large rate swings.”

Having a flex-rating system in place also reportedly makes a state a more attractive place for insurers to do business, which encourages more companies to enter the market in flex rating states. In South Carolina, for example, the number of insurers writing auto insurance in the state increased from a low of only 83 carriers to 150 carriers two years after the implementation of a flex-rating system.

“Implementing a more market-oriented approach to insurance regulation can increase the number of insurers doing business in a state,” said Baldwin. “This means more competition and more consumer choice. This system is beneficial to insurance consumers as prices are more stable.”

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