AIA Rooting Out Antiquated Insurance Regulations
"In an increasingly competitive global market for insurance, we must constantly evaluate the regulatory system," said Joseph DiGiovanni, AIA senior vice president, state government affairs. "Some insurance regulation dates back to a time when most insurance purchases were local. Now, many insurers have interstate and international customers. Just as insurance companies have adapted to new market conditions, so must the laws and regulations."
In the past three years, AIA has made it a top priority to persuade state legislators and insurance departments to eliminate regulatory red tape that is costly yet fails to provide any meaningful value to consumers or insurers.
AIA has been working in seven states this year—Massachusetts, New Hampshire, New York, Pennsylvania, Arkansas, Alaska, California and Oklahoma—to change commercial insurance rating systems from regulator-dependent to market-dependent. For most lines of property and casualty insurance, state regulators must approve rates insurers charge their customers.
"Our principle effort is to end the system of price controls for commercial lines of insurance," DiGiovanni said. "The market is the most flexible system to establish insurance rates. The current regime essentially relegates insurance pricing to the government, which is inefficient and unnecessary."
This year, two states—New Hampshire and Pennsylvania—hold the most promise for success in this area. Oklahoma rejected a commercial lines reform bill this year and the debate in other states is in various stages.
State insurance commissioners have been exploring ways to streamline insurance regulations for the past few years to help improve the business climate within the state. The National Association of Insurance Commissioners is working on a white paper to help guide states in changing rating systems for commercial insurance lines.
"The NAIC is moving in the right direction in trying to identify ways to reduce rate and form regulation for large commercial insurance buyers," DiGiovanni said. "Our view is that all businesses would benefit under a system where insurance rates were set by market forces, not government."
Other AIA regulatory reform efforts include the elimination of form filings—the process by which insurers submit policy forms to regulators before they issue policies to consumers. "This is another instance where the regulatory intent—to protect consumers from the complexity of insurance contract language—has outlived its usefulness for most business customers," DiGiovanni said. "Having to submit forms for prior approval takes time and discourages insurance product innovation to meet specific needs of businesses."
AIA also has targeted obsolete data collection and reporting requirements. Insurance agent counter-signature laws and other enforcement issues cause unnecessary expenditures for no gain in consumer protection, the AIA argues.
"This isn't only about saving insurance companies money," DiGiovanni said. "State insurance departments spend a lot of money and time on issues that bring no value. By eliminating these regulations, insurance departments can spend more time ensuring the financial health of insurers, which is the most important regulatory function."