Appearing on behalf of the American Insurance Association (AIA) before the House Financial Services Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, Robert Gowdy, President and CEO of OneBeacon Insurance Group, made a persuasive case in favor of “urgent, comprehensive insurance regulatory reform, which is necessary to assure a healthy, consumer-oriented U.S. property-casualty insurance industry.”
In his testimony, Gowdy delineated the cost to the insurance industry’s competitiveness–and the costs to consumers–of this outdated, out-of-step regulatory system. He cited three compelling external forces (financial services modernization, the new global economy, and technological revolution) that compel regulatory reform.
Gowdy referred to recent studies by respected academics, who have quantified the consumer costs of restrictive regulatory schemes. He backed these findings up with the real-world experience of states that have reduced or eliminated price and product controls.
For example, University of South Carolina Professor Scott Harrington found in a recent study that states with stringent price controls had the most expensive auto insurance — 19 percent higher on an annual basis than states with minimal or no price regulations. In an earlier econometric study, he found strict price controls also were strongly associated with reduced coverage availability and increased price volatility for insurers and consumers.
Unnecessary cost increases are also associated with the strict regulation of new product development. Time delay for product approvals varies tremendously by state. Jumping through the regulatory barriers to launch a new product can take over seven months in some states.
The hearing on Insurance Product Approval, also known as “speed to market,” is one of a series being held by Subcommittee Chairman Richard H. Baker (R-LA) in his examination of insurance regulation in the post-Gramm-Leach-Bliley era.
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