NAMIC Makes the Case for Underwriting Freedom

September 21, 2004

Efforts to deregulate property casualty insurance should include easing restrictions that states place on insurance companies’ underwriting, and not just on removing pricing controls, the National Association of Mutual Insurance Companies (NAMIC) said today.

At its annual convention in Washington, D.C., NAMIC released a policy paper it hopes will help make the case to state legislators and regulators that restricting insurers’ use of underwriting factors such as territories, credit scoring and the age of a home distorts markets and harms consumers.

“Government restrictions on underwriting freedomn ostensibly guard against unfair business practices and ensure that insurance will be availabe to meet market demand,” said Robert Detlefsen, NAMIC public policy director. “In many instances, however, these regulatory interventions only create dysfunctional market conditions that are detriental to most insurance consumers.”

The paper cites geographic territory, age of a home and credit scoring as three examples of risk factors insurers use but some states have resticted orbanned. The restrictions result in cross-subsidies that flow from “low-risk insureds to high-risk insureds, thereby subjecting consumers to a hidden wealth transferring scheme,” according to
NAMIC.

Moreover, weakening insurers’ ability to use risk-based underwriting removes some incentives that high-risk individuals would otherwise have to take precautions to avoid loss, according to Detlefsen’s report.

He said the end result is increased rates and loss costs, which ultimately raise the cost and curtail availability of coverage for most consumers.

The paper, “The Case for Underwriting Freedom: How Competitive Risk Analysis Promotes Fairness and Efficiency in Property-Casualty Insurance Markets” is one in a series of NAMIC policy monographs explaining its public policy positions.

Roger H. Schmelzer, senior vice preisdent for NAMIC’s state and regulatory affairs dvision, said his group will use the papers to argue the case for modernization of personal lines insurance in the states.

“Our strategy is that if we can make a strong case for modernization, Congress might lose interest,” Schmelzer said.

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