NY Insurance Association Calls For End To Price Controls
Proposes Regulatory Modernization In New York
Albany, NY - The New York Insurance Association (NYIA) launched an initiative to modernize insurance regulation of property/casualty insurance rates and policy forms in New York State.
The proposal, circulated for comment to NYIA members and other industry groups, calls for file and use in competitive markets. It also retains state oversight of property/casualty insurance, but introduces market-based pricing for both commercial and personal lines.
"There is widespread agreement among economists that government control of prices is an inferior method of regulating price in any market where there are many sellers competing for business," said Bernard Bourdeau, president of NYIA. "New York needs to join states like Illinois which have successfully stimulated competition to the benefit of consumers by ending government price controls."
NYIA's proposal; provides that rate and policy forms be filed by insurance companies and used upon filing. "This will allow insurers to respond quickly to consumer demand for new products and changing market conditions," he said.
Bourdeau also noted that the bill creates consumer safeguards. "If a particular insurance market is found to be non-competitive by objective criteria, rates and policy forms will be subject to prior approval by the regulator," he said.
Bourdeau said the organization's draft bill creates a presumption that market-based pricing is the ideal pricing mechanism for insurance consumers, absent a finding that the market for a particular line of insurance lack adequate competition.
He pointed out that the objective standard the proposed legislation uses to determine whether a particular market is non-competitive is the same one used by the Federal Trade Commission and the U.S. Justice Department in evaluating mergers for anti-trust purposes.
The bill adopts the Herfindahl index which measures market concentration for different areas of commerce. The legislation would apply this measurement of market concentration to the rate and policy form review for each proper/casualty insurance market.
When the market is highly competitive, the bill would authorize a file and use environment, Bourdeau explained.
However, if the market is found to be "moderately competitive by he index, the insurance department could impose flex rating. If a market is found to be "non-competitive" under the index, the department would be required to impose prior approval or rates and forms.
"In this way, the measure allows for insurers to respond quickly to consumer demands and to loss costs in competitive environments while ensuring protections to consumers when the market is not competitive," said Bourdeau.
He said that normal oversight by the insurance department would still apply – rates cannot be excessive, inadequate, destructive of competition or unfairly discriminatory and policy forms cannot be misleading or violate state law.
SOURCE: New York Insurance Association (NYIA)