South Carolina Governor Signs Flex-Rating Bill

South Carolina Governor Mark Sanford recently signed SB 686, a personal lines flex-rating bill that could ultimately result
in the elimination of prior approval for homeowners insurance rates.

The bill al-lows carriers to in-crease or decrease rates within a 7 percent band without prior approval from the South Carolina Depart-ment of Insurance. Companies may institute a rate increase or decrease if the DOI does not respond within 30 days. Rate changes outside the 7 percent band must still go through the prior approval process.

“The new system mirrors somewhat what the Legislature has already done for automobile rates in the late 1990s,” said Raymond Farmer, American Insurance Association assistant vice president, Southeast region. “We went from prior approval to a file and use system and now the commercial lines are thriving in South Carolina.”

Dean Kruger, chief actuary with the South Carolina Department of Insurance, said that he did not anticipate rates to increase because of the legislation. “I don’t expect it to really raise rates because under a flex rating, you still have the ability to review the filings,” he said. “It isn’t like companies can do anything they want. What I expect is that we will get more insurers in the market.”

Farmer said that consumers will receive the benefits of increased competition, including decreased rates. He said the advantages would be similar to those received by the auto law changes in the late 1990s. “Obviously when you look on the coast, as in any state that has a coastal section, some consumers have had to look around and shop a little bit for their coverage,” he said. “But there has not been to my knowledge a widespread availability problem at all in South Carolina. [SB 686] will at least attempt to alleviate any problem that may be coming down the pike.”

Kruger disagreed and said that there is a real problem with availability in South Carolina’s homeowners market. “We consider it a problem of availability that we’ve worked on for years and we needed to do something,” Kruger said. “But we’ve been able to get insurance for every consumer that has called us.”

Farmer said that the bill’s effect on agents and brokers will be a positive one. “It just gives them more products to sell and it helps them in the marketplace,” he said.

Kruger anticipated switching away from prior approval over the next few months or year to attract more insurers. “We would like to get to a bill that allows us to get to file and use, which would be our goal,” he said. “We would expect that with this legislation and maybe other things that the market will become competitive and then we would go to the file and use system. But we’re talking a matter of years.”

Kruger added SB 686 was a logical step, noting, “After the automobile worked here, it’s always been our hope to one day do the other personal lines,”
he said.

Topics South Carolina