The North Dakota House Industry Business and Labor Committee unanimously approved legislation this week that would implement a 5 percent flex band rating system for automobile and homeowners insurance. The bill SF 2296 would also put in place a use and file system for commercial lines.
Flex-rating systems enable insurers to implement modest rate changes within a percentage band without approval from the regulator. However, it ensures that larger changes undergo regulatory review before going into effect. Under the current prior approval systems, all rates, rules and rating plans must be filed and approved before going into effect. These systems often make the insurance marketplace less competitive than it could be if it operated under a more streamlined approach, such as flex rating, according to the Property Casualty Insurers Association of America (PCI).
“This bill is a step in the right direction,” said Ann Weber vice president and regional manager for PCI. Flex-rating is a reasonable rating system that lessens regulatory burdens for both insurers and regulators without compromising consumer protection. Policyholders benefit from a market environment characterized by healthier competitive forces and flexibility while at the same time the system reduces sharp gyrations in the rate level.”
PCI testified in support of SF 2296 highlighting that a number of states have experienced positive results after moving away from prior approval laws. While loss costs, or the average loss per insured vehicle, are the main driver of insurance premiums, there is a clear connection between rating systems and premiums. According to data compiled by NAIC for 2003, the average premium for a prior approval state was 10.7 percent higher than states with flexible rating laws.
Weber said that the number of insurers doing business in a state is a sure indicator of the health of the marketplace. “States implementing flexible rating plans typically attract new competitors. According to data provided by the NAIC, Pennsylvania saw a 21 percent increase in the number of insurers over a four year period. South Carolina’s experience was more dramatic, increasing from 83 companies in 1997 to 150 in 2001, an 82 percent increase,” said Weber.
In a recent Insurance Journal interview, North Dakota Commissioner Jim Poolman said he supports the legislative move to flex rating. “Overall we think this regulatory change will benefit the consumer in the end by making our marketplace more competitive, Poolman said.
PCI is a national property/casualty insurance trade association composed of more than 1,000 member companies.
Source: PCI
Topics Auto Legislation Homeowners
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