N.Y. insurers to seek an end to price controls in 2006

Insurers’ proposal would have state switch to file-and-use rate system

Insurers in New York State will lobby to end price controls on personal and commercial lines policies in the coming year. Their proposal would retain other aspects of state oversight of property and casualty insurance, but introduce market-based pricing for both commercial and personal lines.

The New York Insurance Association is circulating a proposal that provides that rate and policy forms be filed by insurance companies and used upon filing, as opposed to insurers having to wait for regulators to pass judgment before using them.

“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. He urged that New York join states like Illinois which have ended price controls.

He said the change would allow insurers to respond quickly to consumer demand for products and changing market conditions. According to Bourdeau, the bill has a consumer protection if competition isn’t working. “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.

Pricing presumption

Bourdeau said the bill creates a presumption that market-based pricing is the ideal pricing mechanism for insurance, absent a finding that the market for a particular line of insurance lack adequate competition.

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 applies this Herfindahl index to 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 step in and impose flex rating. If a market were 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.

Topics Carriers New York