The Push for Deregulation.
While many states have turned their attention to such hot issues as privacy and producer licensing, efforts to deregulate deregulate
To reduce or eliminate control. One of the major forces in the financial markets in the 1970s and 1980s was the federal government's decision to deregulate interest rates. commercial insurance are not dead. Here's a look at what the states are doing.
For once, risk managers, insurers, agents and brokers seem to be, if not on the same page, at least in the same book. All agree that loosening loosening /loo·sen·ing/ (loo´sen-ing) freeing from restraint or strictness.
loosening of associations constricting con·strict
v. con·strict·ed, con·strict·ing, con·stricts
1. To make smaller or narrower by binding or squeezing.
2. To squeeze or compress.
3. policy and rate approval requirements can benefit all of the parties to an insurance contract.
Currently, it can take as long as 18 months to get an insurance product approved on a nationwide basis, says Lee Covington, director of the Ohio Department of Insurance and chairman of a National Association of Insurance Commissioners The National Association of Insurance Commissioners (NAIC) is an Internal Revenue Code Section 501(c)(3) non-profit organization which seeks to organize the regulatory and supervisory efforts of the various state insurance commissioners from around the United States. committee working to develop improvements to state-based insurance regulations "That's not good for consumers. That's not good for insurers--it's not good for anybody," he says.
With less regulation on the front end, insurance companies can introduce policies more quickly, respond more effectively to the market and decrease compliance costs, Covington says. As a result, policyholders will benefit from increased insurer innovation, service and coverage options, he says. Finally, insurance regulators can reallocate Verb 1. reallocate - allocate, distribute, or apportion anew; "Congressional seats are reapportioned on the basis of census data"
allocate, apportion - distribute according to a plan or set apart for a special purpose; "I am allocating a loaf of resources to core responsibilities, Covington says.
"Today we need to take more resources from front-end review and spend them on activities that are core to the insurance contract," Covington says. "We want to use our limited resources for actions that provide the most value to consumers." Instead of spending the money and man-hours reviewing policy forms and rates up front, those resources would be better spent monitoring such activities as market conduct and sales practices, he says.
Another argument for reducing regulatory requirements Regulatory requirements are part of the process of drug discovery and drug development. Regulatory requirements describe what is necessary for a new drug to be approved for marketing in any particular country. is the sheer cost. Complying with rate and form filing requirements adds an estimated $40 million to $55 million to state budgets and $1 billion to insurance industry budgets, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. a 1997 NAIC NAIC
See National Association of Investors Corporation (NAIC). white paper.
As insurer costs go down, so should the cost to policyholders. "I think it's logical to conclude that if there is a downward pressure on costs, that could translate to lower costs for policyholders as well," says Brenda O'Connor, director of public affairs Those public information, command information, and community relations activities directed toward both the external and internal publics with interest in the Department of Defense. Also called PA. See also command information; community relations; public information. for the American Insurance Association's Mid-Atlantic region.
Academic studies support that conclusion, Covington says. He pointed to a recent study that found lower rates in states that had a system of regulation leaning toward a competitive marketplace than in states that regulate rates on the front end.
Twenty-six jurisdictions have statutes that deregulate some aspect of commercial insurance. These jurisdictions include Arizona, Arkansas, Colorado, the District of Columbia District of Columbia, federal district (2000 pop. 572,059, a 5.7% decrease in population since the 1990 census), 69 sq mi (179 sq km), on the east bank of the Potomac River, coextensive with the city of Washington, D.C. (the capital of the United States). , Georgia, Hawaii, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Maine, Michigan, Minnesota, Missouri, Nebraska, New Hampshire New Hampshire, one of the New England states of the NE United States. It is bordered by Massachusetts (S), Vermont, with the Connecticut R. forming the boundary (W), the Canadian province of Quebec (NW), and Maine and a short strip of the Atlantic Ocean (E). , New Jersey, Oklahoma, Pennsylvania Oklahoma is a borough in Westmoreland County, Pennsylvania, United States. The population was 915 at the 2000 census. Geography
Oklahoma is located at (40.581613, -79.574586)GR1. , Rhode Island Rhode Island, island, United States
Rhode Island, island, 15 mi (24 km) long and 5 mi (8 km) wide, S R.I., at the entrance to Narragansett Bay. It is the largest island in the state, with steep cliffs and excellent beaches. , South Carolina South Carolina, state of the SE United States. It is bordered by North Carolina (N), the Atlantic Ocean (SE), and Georgia (SW). Facts and Figures
Area, 31,055 sq mi (80,432 sq km). Pop. (2000) 4,012,012, a 15. , Texas, Virginia and Washington. (See chart on page 40.)
Some states--including Hawaii, Illinois, Michigan and Minnesota--do not require rate or form filings for most commercial policies. Other states exempt so-called "sophisticated" commercial insurance buyers based on premium thresholds and additional criteria, including net worth, net revenue or sales, number of employees, annual budget, population size, total insured property values, gross revenue, and use of an intermediary Intermediary
See: Financial intermediary
See financial intermediary. , risk manager, insurance consultant, or independent insurance advisor.
For example, New Jersey and Oklahoma have lenient le·ni·ent
Inclined not to be harsh or strict; merciful, generous, or indulgent: lenient parents; lenient rules. premium thresholds of $10,000, while New Hampshire requires $500,000 in premiums or exemptions based on net worth, net revenue/sales, number of employees, use of a risk manager, and annual budget or population size.
Often, the most controversial deregulation Deregulation
The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry.
Traditional areas that have been deregulated are the telephone and airline industries. issue is the exemption criteria. Some believe exemptions are necessary to protect "unsophisticated buyers."
"One potential downside Downside
The dollar amount by which the market or a stock has the potential to fall.
You might hear someone say that the downside on stock XYZ is $10. What that means is that the stock could fall by this amount if things got bad. (to deregulation) would be an instance where the standards for participation are so low that unsophisticated insurance consumers wouldn't be properly protected and would be negotiating at a disadvantage," says Daniel Barry, director of government affairs for the Risk and Insurance Management Society Risk and Insurance Management Society, Inc. (RIMS), founded in 1950, is a membership-based industry trade group, representing nearly 4,000 industrial, service, nonprofit, charitable, and governmental entities and serves more than 10,000 risk management professionals around the in New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of .
Many insurers support low or no thresholds for participation. "We support a zero threshold in terms of premium so everyone can benefit," says AIA's O'Connor. Thresholds are not the only protection, she says. "If you have an agent, broker or risk manager within an organization, you have 100 percent consumer protection right there."
Plus, consumers still benefit from the presence of the insurance commissioners, O'Connor says. "Under almost all bills, the insurance commissioner maintains 100 percent regulatory authority Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest
administrative body, administrative unit - a unit with administrative responsibilities ."
National Standards Possible
Although insurers and policyholders support deregulation, such a piecemeal piecemeal
patchy, e.g. necrosis of the liver in which groups of hepatocytes are separated by small groups of inflammatory cells and fine, fibrous septa following extension of the inflammatory process beyond the limiting plate. approach has left many playing catch up on changes in the various states they do business in. "As states have been implementing these laws, they've varied widely, which is problematic," says RIMS' Barry. "It's very fragmented frag·ment
1. A small part broken off or detached.
2. An incomplete or isolated portion; a bit: overheard fragments of their conversation; extant fragments of an old manuscript.
3. and we would like a uniform standard."
Enter the NAIC's Speed-to-Market Plan, which the commissioners adopted at their winter meeting and are in the process of implementing. The NAIC says it is "reengineering and modernizing" regulation of commercial insurance lines. The national standards developed by the organization's Speed to Market Working Group continue where individual state-based deregulation initiatives left off by recommending decreased front-end regulatory requirements and improved operational efficiencies.
The main goal of the plan is to create a competitive marketplace for commercial lines while maintaining effective regulatory oversight
Oversight may refer to:
n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. , 90 percent to 95 percent of the policies conformed.
The NAIC is also relying heavily on its System for Electronic Rate and Form Filing (SEREF SEREF Solar Energy Research and Education Foundation ). In February, the commissioners approved a $1.2 million budget for the electronic filing system, which Covington says should be implemented in 41 states by the end of this year.
Unlike the state initiatives--which set exemptions to form and rate filing regulations according to premium or perceived sophistication so·phis·ti·cate
v. so·phis·ti·cat·ed, so·phis·ti·cat·ing, so·phis·ti·cates
1. To cause to become less natural, especially to make less naive and more worldly.
2. of the insurance buyer--the Speed to Market Plan identifies four regulatory frameworks and recommends how different products should be regulated. The four systems include no filing, information filing, file and use, and prior approval. In the Speed to Market plan, the subgroup sub·group
1. A distinct group within a group; a subdivision of a group.
2. A subordinate group.
3. Mathematics A group that is a subset of a group.
tr.v. recommends that states first determine whether the regulatory purposes of state law can be achieved under one of the other systems before imposing a prior approval filing system. (See sidebar (1) A Windows Vista desktop panel that holds mini applications (gadgets) such as a calendar, calculator, stock ticker and Vonage phone dialer. It is the Windows counterpart to the Dashboard in the Mac. See Windows Vista and gadget. on page 42 for an overview of the regulatory frameworks.)
"Having to have prior approval before forms can be used holds up everything," says Nicole Allen, director of state affairs for the Council of Insurance Agents & Brokers in Washington. Instead, regulators should review policies as a part of market conduct reviews, Allen says. "If there are problems, companies are going to complain.
"One of good things about the new NAIC initiative is the uniform approach, but we also don't want it to stop what states have been doing on their own," Allen says. Individual states and regions have different risks and, therefore, different concerns, she says. For example, coastal area markets are concerned about hurricanes, while California is more concerned about earthquakes.
The reliance on back-end monitoring concerns consumer groups, however. "I don't think they should let crummy crum·my also crumb·y
adj. crum·mi·er also crumb·i·er, crum·mi·est also crumb·i·est Slang
1. Miserable or wretched: a crummy situation in the family.
2. products into the marketplace. It makes much more sense to do the monitoring on the front end," says Bob Hunter, director of insurance, Consumer Federation of America The Consumer Federation of America (CFA) is a non-profit organization founded in 1968 to advance the consumer interest through research, education and advocacy.
According to CFA's website, its members are approximately 300 consumer-oriented non-profits, which themselves have in Washington.
He is also concerned that smaller companies, who are perceived to be less sophisticated buyers, will not be protected under deregulation. "We're all for simplification, but we're opposed to broad deregulation," Hunter says. "Regulators shouldn't get in between large sophisticated buyers and sophisticated seller. But I don't think they make enough differentiation between small and large commercial accounts."
"The NAIC is falling all over themselves to deregulate as a way to keep insurers from supporting federal regulation. Consumers don't care
"Don't Care" is a 1994 (see 1994 in music) single by American death metal band Obituary. who regulates. What they care about is the quality of the regulation," Hunter says.
In the end, a federal regulatory system may not be out of the question if the NAIC fails to reach its goals, says the Council of Insurance Agents & Brokers' Allen. In fact, she points to the creation of the National Association of Registered Agents and Brokers as evidence of congressional willingness to intervene intervene v. to obtain the court's permission to enter into a lawsuit which has already started between other parties and to file a complaint stating the basis for a claim in the existing lawsuit. in the historically state-run insurance oversight. Congress gave the industry an ultimatum ultimatum (ŭl'tĭmā`təm), in international law, final, definitive terms submitted by one disputant nation to the other for immediate acceptance or rejection. : three years to achieve reciprocity reciprocity
In international trade, the granting of mutual concessions on tariffs, quotas, or other commercial restrictions. Reciprocity implies that these concessions are neither intended nor expected to be generalized to other countries with which the contracting parties or a uniform licensing law or else a federal organization would be created.
"This is the time to move forward and if (the NAIC) is not prepared to move forward, there are people who are," Allen says. "If they can't get there, the federal option may come into existence."
States That Have Deregulated Commercial Insurance STATE PREMIUM THRESHOLD, EFFECTIVE DATE IF ANY Arizona None: "industrial insurance" is exempt 8/21/98 from form filing requirements and industrial insureds may enter into consent-to-rate arrangements. Arkansas $250,000 for rate and form deregulation. 7/30/99 Colorado Currently: $50,000. Instead of a 1/15/00 statutory minimum premimum, insurance commissioner defines terms of exemption from rate and form deregulation through rules. Georgia $100,000 in GA or $500,000 in multistate 1/11/99 operations for rate deregulation. Hawaii None for forms. Illinois Rate filings are not statutorily required. Indiana No statutory provision for forms. 5/13/99 $75,000 threshold for rate deregulation. Kansas Rates: property premiums of $50,000, 7/1/99 general liability premiums of $50,000, or annual multiple lines premiums of at least $100,000. Kentucky Rates: annual aggregate insurance 7/14/00 premiums of $500,000. Louisiana $200,000 for form deregulation. Set by 4/1/00 insurance commissioner. Review of threshold in one year. Maryland $75,000 for form deregulation. Workers' 10/1/2000 comp not exempt from form filing. Maine Four-year phase down for rate and form 9/18/99 deregulation: 2000: $90,000 2001: $75,000 2002: $60,000 2003: $50,000 Michigan Most forms exempt from regulation. Minnesota None - for rate and form deregulation. Missouri $50,000 for rate and form deregulation. 8/28/99 Nebraska Threshold to be established by rule - 1/1/01 for rate and form deregulation. New Hampshire $500,000 for rate and form deregulation. 8/25/98 New Jersey $10,000 for rate and form deregulation. 1995 Oklahoma $10,000 for rate deregulation. 11/1/99 Pennsylvania $25,000 for rate and form deregulation. 12/98 to 2/99 Rhode Island $150,000 for rate and form deregulation. 6/18/99 South Carolina $50,000 for rate and form deregulation. 3/7/00 Texas $25,000 property premium, $25,000 for 9/1/95 general liability premium, or $50,000 for multi-peril insurance -- for form deregulation. Virginia $250,000 on workers' comp large 7/1/99 for workers' comp; deductible plans - rate deregulation. 7/1/00 for commercial $100,000 on large commercial insureds - deregulation rate and form deregulation. Washington $25,000 for rate deregulation, 11/15/99 accomplished by regulation. STATE ADDITIONAL CRITERIA FOR EXEMPTION EFFECTIVE DATE Arizona 8/21/98 Arkansas Number of full-time employees; full-time 7/30/99 certified risk manager. Also, consent to rate forms and "A" rated risks. Colorado Rules may include: use of risk manager, 1/15/00 aggregate premiums, net worth, net revenues, number of employees, annual budget for nonprofit, minimum population for a municipality. Georgia Number of employees, asset size, 1/11/99 revenues. Hawaii Illinois Indiana Rate deregulation: number of full-time 5/13/99 employees, net worth, net revenue or sales, size of annual budget, use of a risk manager. Insured property value, annual gross revenues. Kansas 7/1/99 Kentucky Use of an intermediary, risk manager or 7/14/00 insurance consultant, population, annual budget, assets, net worth, net revenue/ sales, number of employees. Louisiana 4/1/00 Maryland Annual revenues; net worth; number of 10/1/2000 full-time employees; annual budget; population size. Maine Use of risk manager, net worth, net 9/18/99 revenue or sales, number of employees, size of annual budget (non-profits), minimum population size for municipality. Michigan Minnesota Missouri Use of independent insurance advisor, 8/28/99 number of employees, net worth, net revenue/sales, size of budget, population size for municipalities. Nebraska 1/1/01 New Hampshire Net worth, net revenue/sales, number of 8/25/98 employees, use of a risk manager, annual budget, population size. New Jersey 1995 Oklahoma 11/1/99 Pennsylvania Number of employees. 12/98 to 2/99 Rhode Island Use of a risk manager, net worth, net 6/18/99 revenues/sales, number of employees, size of budget (for nonprofit), size of population. South Carolina 3/7/00 Texas Total insured property values, annual 9/1/95 gross revenues. Virginia Net worth, annual revenues, number of 7/1/99 for workers' comp; employees, annual budget, population 7/1/00 for commercial size. deregulation Washington 11/15/99 Source: American Insurance Association, Washington.
A Framework for National Regulation
The National Association of Insurance Commissioners in Washington Speed to Market Plan identifies four regulatory frameworks and recommends how different insurance products should be regulated. The four systems include no filing, information filing, file and use, and prior approval.
Under a no filing regulatory framework, insurers are not required to file any information with the regulator regulator,
n the mechanical part of a gas delivery system that controls gas pressure that allows a manageable flow of drug vapor to escape.
see reducing valve. to introduce a product to market, but regulators may request information to ensure compliance with statutory requirements. The Speed to Market plan recommends the following products be regulated under a no filing system: financial guaranty As a verb, to agree to be responsible for the payment of another's debt or the performance of another's duty, liability, or obligation if that person does not perform as he or she is legally obligated to do; to assume the responsibility of a guarantor; to warrant. , aviation, ocean marine, employment practices liability, commercial inland marine (not written according to manual rates or rating plans), directors' and officers', boiler boiler, device for generating steam. It consists of two principal parts: the furnace, which provides heat, usually by burning a fuel, and the boiler proper, a device in which the heat changes water into steam. and machinery, nuclear insurance products, commercial credit insurance, manuscript policy forms, "A" rated and consent to rate risks, and products sold to exempt commercial policyholders.
Under an information filing system, insurers must file for informational purposes the rates, rating manual, policy forms and an explanatory ex·plan·a·to·ry
Serving or intended to explain: an explanatory paragraph.
ex·plan memorandum of new products or revisions to existing products. The regulator may ask for additional information and review the filing during the market conduct process. Information filings are appropriate for all commercial lines, except those listed under other categories, workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. , and "me-too" filings.
Insurers must file rates, rating manuals, supporting actuarial ac·tu·ar·y
n. pl. ac·tu·ar·ies
A statistician who computes insurance risks and premiums.
[Latin information and policy forms before use under the file and use system. The regulator generally reviews individual filings for compliance based on discretion. In a competitive market, the Speed to Market subgroup recommends Information Filing for workers' compensation, mortgage guaranty insurance, reference to other insurers' filings, and advisory organization filings.
Under the final regulatory framework--prior approval--regulators must formally approve all rates, rating manuals, supporting information and policy forms. This system is appropriate for title insurance, mortgage guaranty insurance, filings for residual market mechanisms, advisory organization filings, and products where the commissioner makes a formal finding that a competitive market does not exist for the line of business, subject to subsequent review of the market to determine whether competition returns to the market. The subgroup recommends that states first determine whether the regulatory purposes of state law can be achieved under a file and use system before imposing a prior approval filing system.