Agent Group Says Competition is Best Regulator

Lending its voice to the burgeoning commercial lines reform debate, the National Board of State Directors of the Independent Insurance Agents of America (IIAA) earlier this week approved a policy statement that endorses the role of the competitive marketplace as the most effective and efficient regulator of commercial lines rates.

The policy was approved earlier this month at the Association's Winter Board meeting in Palm Springs.

"The policy statement as approved by the Board is a general IIAA position," says State Government Affairs Subcommittee Chairman Ronald Smith, CPCU. "It is not intended to supplant individual IIAA state association policy, but is designed to provide guidance to them as they encounter legislative efforts to reform how commercial lines providers and products are regulated by state insurance departments."

In the new policy, IIAA notes that "state insurance laws and regulations must continue to evolve if they are to best serve consumers in the future."

"As the insurance industry rapidly changes thanks to technology and other internal and external forces, commercial lines providers must have the flexibility to adapt to the evolving needs of consumers to be properly positioned in the highly competitive marketplace," Smith says. "The IIAA policy statement will provide insurers the flexibility while simultaneously ensuring continuing state authority and offering appropriate protection for the consumer."

Under the policy, IIAA states that the competitive marketplace is the most efficient and effective regulator of commercial lines rates, but provides state regulators the ability to act in limited circumstances. A regulator may intervene if a market or line of insurance is noncompetitive or when a rate is excessive, inadequate, unfairly discriminatory, or unreasonably low resulting in diminished competition or a monopoly.

"IIAA is not trying to diminish the authority of state insurance departments through this commercial lines policy statement," says Smith, president of Smith, Sawyer & Smith, Inc. in Rochester, Ind. "The statement preserves the authority of state regulators to act when an insurer uses an improper form or rate, and regulators will continue to play an important role in the protection of consumers. Our policy simply establishes clear standards for those limited instances in which regulators should intervene."

The policy statement also addresses form regulation, but says that rate and form approval mechanisms may appropriately differ. Here, the IIAA policy recommends greater oversight in the forms area and suggests that there needs to be adequate protection against improper or faulty forms "because of the harm that can result to the insurance consumer if a form is confusing, misleading, or provides inadequate coverage." Regulators would have the authority to intervene if a form is "unfairly discriminatory, deceptive, misleading, or not in the public interest."

IIAA Vice President of State Government Affairs Wesley Bissett says, "IIAA strongly supports state regulation. We believe thoughtful and appropriate commercial lines modernization can help ensure companies are responsive in this fast-evolving marketplace. State authority is preserved by laying out specific standards where intervention is necessary and, more importantly, in the best interest of protecting consumers.

"This commercial lines policy statement will be helpful to IIAA state affiliates to set the terms of the debate within their legislature," Bissett adds. "The parameters set out in this policy will help states establish laws and regulations that will spur insurers to offer cutting-edge products and coverages in a responsive manner so that consumers will be the beneficiaries of market innovation."

The complete policy statement as approved by the IIAA National Board of State Directors follows:

IIAA is a strong advocate for state regulation of the insurance business. IIAA recognizes, however, that state insurance laws and regulations must continue to evolve if they are to best serve consumers in the future.

To this end, IIAA encourages states to review the laws and regulations that govern commercial lines rates and forms to ensure that they are structured in the best manner possible. The laws and regulations in this area should enable the insurance industry to introduce new products, coverages, forms, underwriting rules, rates, and rating plans in an efficient, timely, and responsive manner so that consumers benefit from market innovation.

With respect to commercial lines rates, IIAA believes that the competitive market is the most efficient and effective regulator, and individual states should determine the most appropriate regulatory scheme to achieve this principle. The state insurance regulator should retain the authority to intervene upon a finding that: (1) a particular market is non-competitive; or (2) a rate is excessive, inadequate, or unfairly discriminatory; or (3) a rate is unreasonably low and has the effect of substantially lessening competition or creating a monopoly.

IIAA believes that rates and forms should be treated differently under any commercial lines reform proposal. IIAA believes that forms should be subject to a greater level of regulatory review and oversight because of the harm that can result to the insurance consumer if a form is confusing, misleading, or provides inadequate coverage.

Regardless of the size of the insured, the regulator should retain the authority to intervene when a particular form is unfairly discriminatory, deceptive, misleading, or not in the public interest.