Insurance Groups Want NAIC Panel to Seek Best Practices Toward Commercial Lines Market Reform

The Property Casualty Insurance Association of America, the American Insurance Association and the National Association of Mutual Insurance Companies presented joint testimony urging the panel to make recommendations to NAIC that would modernize how states handle rate filings and form filings made by commercial insurers who have multistate risks.

The testimony was given at the NAIC's Summer National Meeting in Indianapolis to the commercial lines working group, which held its first meeting in April. Its work plan called for members to "provide recommendations to the NAIC as to what it and the states can do to assist in making commercial lines regulation as effective and efficient as possible.

The working group was formed after the AIA asked for NAIC to consider suggestions toward an update of filing rules for commercial insurers. It is in the early stages of the process, currently considering industry and consumer groups' suggestions.

Currently, the working group is preparing a survey to states that would provide information on what has worked for them in improving efficiency of commercial filings. A Sept. 23 deadline has been set to submit questions and the goal is to complete the survey by year's end, Panel Chairman Lee Barclay, a senior actuary in the Washington state Office of Insurance Commissioner, was not sure if that goal would be met.

Reforms conducted in the 1990s left a patchwork quilt of laws in states that have made it increasingly difficult for commercial insurers to meet risk management needs using traditional commercial insurance.

Dave Snyder, PCI vice president of international policy, said the various filing requirements and review periods among states result in the approval of a nationwide filing taking as long as one year to complete. Snyder told Best's News Service that under such conditions, customers tiring of the wait will use less-regulated, non-insurance options, such as self-insurance or buying insurance off-shore.

Snyder, Lisa Brown, AIA senior counsel and director, compliance resources, and Paul Tetrault, NAMIC's state and policy affairs counsel, provided a preliminary inventory of industry concerns about commercial lines competitiveness. When discussing ways companies avoid the long wait by using less-regulated, non-insurance options, the list said companies will provide a product on a surplus lines basis to avoid the delay and cost of trying to gain 50-state approval. Companies have reported that different states have required them to make multiple filings to get approval for the same forms. Companies also cannot sell certain general liability policies in some states.

Inconsistent rules and restrictions among the states limit ability of commercial insurers to offer coverage for a single policy to commercial insureds that have exposure in multiple jurisdictions, the inventory said. As a result, insureds must underwrite based on the most-restrictive state where coverage is offered. As an alternative, insurers either write multiple policies for a single policyholder or carve out particular categories of loss, often leaving the policyholder with coverage gaps.

The inventory cited a 2002 study that estimated commercial lines form regulation costs $18.3 billion in annual premium losses in the traditional insurer market. It also said several states provided guidance on handling multi-state risks, including Arizona, Idaho, Louisiana, Nebraska, New York and New Jersey.

Birny Birnbaum, executive director of the Center for Economic Justice, a designated consumer representative to the panel, said he fears industry recommendations would lead to deregulation and called for industry and states to agree to a high level of uniform standards to protect consumers. "A lot of the problems industry is complaining about are of their own making," he said.