PCI Calls for Sound Principles in Insurance Regulation at Hearing

The Property Casualty Insurers Association of America (PCI) renewed its call for reforming the state-based insurance regulatory system based on sound principles of regulation and preserving the prerogatives of the states. However, it also recognized that many states have not made sufficient reforms and that much work is needed to modernize and streamline the existing regulatory system.  
 
In testimony submitted for today’s Senate Banking Committee hearing on insurance regulation, David A. Sampson, PCI’s president and CEO, commended the committee and its leaders for taking up this crucial issue and encouraged an approach emphasizing market freedoms and a competitive business environment.  
 
“As policymakers consider options for fostering a competitive, global insurance industry, it is vital to understand the principles of good insurance regulation,” Sampson said. “The primary responsibility of regulation should be to enhance solvency protection for policyholders. Competitive markets are the best regulators of product and pricing, as they promote innovation and product availability, attract capital, and provide incentives for the efficient allocation of resources by consumers and insurers.”  
 
Sampson outlined several things that good regulation should accomplish, including:  
 
· Foster education to support consumer choice in a competitive market  
 
· Protect consumers against fraud and deceptive practices  
 
· Enhance private-sector function by eliminating unnecessary governmental intervention  
 
· Minimize economic cost of regulation by using rigorous cost/benefit analysis  
 
Sampson also warned against the hazards of over-regulation.  
 
“In general, states with freer markets benefit from more consumer choice, rate predictability and insurance premiums that are more reflective of actual risk,” Sampson said. “For many years, Massachusetts and New Jersey were the traditional ‘poster children’ for intrusive over-regulation of auto insurance rates. Recent reforms, however, have resulted in more insurers re-entering auto insurance markets in those states, thus encouraging greater competition and providing more choices for consumers.”  
 
Additionally, Sampson noted the strong examples of Illinois and South Carolina. In Illinois, the state’s “no-file” system allows market forces to set nearly all insurance rates, avoiding state price regulations that can distort the market and negatively impact consumers. In South Carolina, auto reform increased the number of insurers serving that state by two-thirds, and more companies are entering the market due to increased competition.  
 
Sampson also recognized Colorado, Hawaii, Michigan, and Rhode Island for taking positive steps toward imposing fewer restrictions by allowing a “use-and-file” system by which insurers can begin using new forms and simply alert state officials that they are doing so.  
 
Conversely, Sampson noted that the states, overall, have not implemented sufficient reforms and cited California, Florida, and Texas as examples that underscore PCI’s concerns about the failure to make sufficient changes and improvements.  
 
“Where states do not make needed reforms, taxpayers may face the potential for massive liabilities if poorly funded state insurance systems fail,” Sampson said. “The Florida property insurance market in particular still faces great challenges. As an example, the Citizens Property Insurance Corporation is Florida’s residual market of last resort and has become the largest property insurer in the state.”  
 
Sampson said that PCI would continue to work with states, the National Association of Insurance Commissioners (NAIC) and others to advance sound, market-based solutions. He also said it may be necessary to weigh additional steps not limited exclusively to the states, and that these could include federal surplus lines and reinsurance legislation, the National Association of Registered Agents and Brokers Reform Act of 2008 (NARAB II), the bill to establish a federal Office of Insurance Information (OII), or other modernization initiatives.  
 
“The insurance industry and lawmakers must come together to consider these issues and recommendations in order to ensure a business environment that is effective and efficient, meets consumers’ needs and is free of unnecessary government constraints on market participants,” Sampson said. “As a cautionary note, this year’s turmoil in the financial and mortgage sectors should encourage the industry to proactively consider reforms that ensure proper functioning and stability in the insurance market.”  
 
About PCI  
 
PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $194 billion in annual premium, 40.1 percent of the nation’s property/casualty insurance.