Greater pricing freedom, the reliance on competition as the primary regulator, and the reinforcement of states as the primary regulator of the insurance industry are the three most important components of a legislative proposal that would dramatically reform the way insurance is regulated in the United States, according to the Property Casualty Insurers Association of America (PCI).
A discussion draft of the “State Modernization and Regulatory Transparency Act (SMART Act) was released late last week (see National News, Aug. 24) by Rep. Richard Baker (R-Louisiana), chairman of the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. Baker’s subcommittee has held a series of hearings on insurance regulatory reform over the past three years and has been working closely with PCI, other insurer and agent groups, regulators and consumer groups to develop a comprehensive reform proposal.
“We are pleased to see that discussion draft encompasses our shared goal of improving the regulatory environment – especially personal lines regulation – through a greater reliance on competitive markets,” said Carl Parks, senior vice president of federal government affairs for PCI. “Earlier this year Rep. Baker told PCI member company executives gathered on Capitol Hill for the association’s Legislative Action Day that ‘rate regulatory relief is the most critical part of the legislative package and that the bill will not move without it.’ The discussion draft delivers on that promise.”
With respect to personal lines, the discussion draft calls for a two-year flex-rating provision to apply upon enactment of the legislation. The measure allows for a seven percent flex-band in the first year and a 12 percent band the second year. After the second year, no state would be permitted to “require the approval, establishment, or prior review of any rate charged for an insurance policy by an insurer.”
“Consumers clearly benefit from more competitive insurance markets and the inclusion of personal lines rate reform remains the highest priority for PCI and our member companies,” said Parks.
“The reforms proposed in the discussion draft, particularly the rate and form provisions, would be a significant improvement over existing regulation in many states,” said Parks. “We have identified several areas of concern to our members in the draft. Chief among these are provisions calling for market conduct examinations to be completed based on a fixed arbitrary schedule rather than allowing regulators the freedom to conduct these reviews of companies that show evidence of compliance problems on a targeted basis.
“Despite these concerns,” he continued, “the bill is an important step in the process of modernizing the insurance regulatory system to make markets more competitive and responsive to consumer needs and changes in the environment.”
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