South Dakota Senate Passes File-and-Use Bill

The South Dakota Senate overwhelmingly passed a bill that would move the state to a file-and-use system of rate regulation while creating a set of rules to allow commercial lines insurers greater freedoms of rate and form and improve their ability to quickly introduce new products to the market.

Senate Bill 37 passed by a vote of 33-2 and does not appear to face any obstacles in the state’s House of Representatives, according to industry sources. Insurance lobbyists have supported the reforms for some time, but they began to gain traction with the appointment of new Insurance Director Gary Steuck, who has been a forceful advocate for an insurance market regulated more by competition and less by the state.

“We’ve got somebody now with vision and we’ve got an individual that understands our market and the problems of our marketplace,” said Larry Ahrendt, executive vice president of the South Dakota Association of Insurance Agents, referring to Steuck (which rhymes with “spike”). “When I look at this bill and changing from the prior approval to file-and-use system and combine it with the regulatory reform or speed-to-market component, these just examples of an individual who’s willing to take the steps necessary to exhibit to the carriers that we’ve got a new environment here.”

If passed by the House and signed by Gov. Mike Rounds, a former insurance broker, SB 37 would allow insurers to simply file adjusted rates with the insurance department and immediately begin using them, instead of having to seek the department’s prior approval of rates as not being excessive or unfairly discriminatory.

Meanwhile, the bill exempts commercial lines insurers from complying with state rate- and form-filing requirements when selling to “
any person who applies for or procures any kind of property casualty insurance … through the use of a risk manager employed or retained by such person,” to be known by law as “exempted commercial policyholders.”

Ahrendt said the changes would be good for agents in South Dakota because they would attract more insurers to the state.

“In 2000 and 2001 we lost a significant number of carriers, [Ohio-based] Westfield Co. being one,” Ahrendt told Insurance Journal. “
We had carriers not only withdraw but carriers discontinue writing certain lines. It really put a crunch on us. We’ve been blessed that the regional companies have really stepped forward and picked up the slack. They’ve done a really great job of picking up this business that was left to float, but you can’t put everything on the back of the regionals. We’ve got to have other companies out there to make a market for us.”

Two national trade groups released statements praising the bill’s passage. “SB 37 is in line with Gov. Rounds’ plan to bring more insurers back into South Dakota after several companies left the state a few years ago,” said Laura Kotelman, regional manager and counsel for the Property Casualty Insurers Association of America (PCI), which was active in promoting the bill. “After all, auto insurers have enjoyed rate freedom for many years in South Dakota. Removal of rating restrictions for all property and casualty lines will bring all lines of coverage into the picture.”

The Indianapolis-based National Association of Mutual Insurance Cos., meanwhile, pointed to the measure as evidence that states are doing their job and Congress needn’t directly regulate insurance.

“Enactment of SB 37 will send a clear message to Congress that states are serious about reforming the state system of insurance regulation,” said NAMIC Central Region State Affairs Manager Joe Thesing in a statement.

“You can look for the industry this year and next year to be trying to modernize the rating laws around the country,” NAMIC Director of State Affairs Neil Alldredge told IJ. “That’s part of our strategy in trying to stave off federal legislation. If states do away with prior-approval laws, the motivation to advocate for federal legislation is diminished. That’s definitely part of the message.”

South Dakota’s exempted commercial policyholders bill language is modeled after a bill passed by Nebraska last year, and according to Alldredge Nebraska may be the next state to change its prior-approval rating law.

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