While the legislative effort did not advance this session, conditions in Nebraska are excellent for regulatory modernization. Commissioner Wagner has traditionally been supportive of streamlining and modernization efforts.
In a legislative session dominated by budgetary matters, Nebraska legislators this year still took time to address many issues of importance to the property/casualty industry. While lawmakers protected the insurance marketplace by killing several bills that would have negatively affected consumers and insurers, they also left the door open for serious consideration of one of the industry’s most important priorities, regulatory modernization.
The short, 60-day session designed primarily for budget and carry-over legislation did not provide the Legislature time to complete work on a bill that would have changed personal lines rate and form filing from prior approval to file and use and made rate filings for workers’ compensation file and use. However, lawmakers did approve resolution LR 343, to study a file and use system for property/casualty insurers. This study resolution also includes the examination of workers’ compensation regulation.
This study bill provides an excellent opportunity to have a thorough discussion of how Nebraska can further improve its insurance regulatory environment and create more competition in the marketplace. We are urging lawmakers to move quickly, hold hearings and develop legislation that creates a market-oriented insurance regulatory system.
This year Nebraska insurers supported LB 1228, which would have created an environment for personal lines similar to the file and use approach of commercial lines filing. During the session, the personal lines modernization bill was amended on to the workers’ compensation speed to market bill. The workers’ compensation bill also would have made rate filings for workers’ compensation file and use. The industry successfully lobbied for the removal of a section that would have mandated workers’ compensation insurers doing business in Nebraska to write all lines.
While the legislative effort did not advance this session, conditions in Nebraska are excellent for regulatory modernization. Commissioner Tim Wagner, an expert on the history of insurance regulation, has traditionally been supportive of streamlining and modernization efforts. Last session the Legislature moved commercial lines form filing from prior approval to file and use. This change brought form filing in line with the regulatory approach that had been in place for rate filings for the past several years.
Agents in Nebraska have not experienced problems with the modernization of commercial filings that have been implemented over the past two years. Since businesses have benefited from this system, consumers of automobile and homeowners insurance should also be able to enjoy the same benefits.
Nebraska’s positive experience with regulatory modernization has now been adopted in South Dakota, which enacted legislation this year in part modeled after speed to market reforms that the Cornhusker state passed in 2003. In addition, there are indications that North Dakota may pursue a similar measure when its legislature is in session in 2005.
In states such as Nebraska that use a prior-approval system, rates and forms must be filed and approved before taking effect. These systems entail direct and indirect costs, including administrative costs for regulators and insurers and costs associated with the delays that result from the rate review process. Prior-approval systems put up roadblocks to competition, increase the number of drivers in residual markets, reduce the number of insurers doing business in a state, reduce consumer choice and restrict market innovation.
Many states have adopted more competition-based personal lines rate regulatory systems and consumers are the clear beneficiaries. Illinois has had competition-based rate regulation since 1971 and has a very healthy personal lines insurance market. Many insurers compete for business in all parts of the state —including major urban areas.
South Carolina abandoned its prior approval of rules in 1999 and went to a flex rating system that allows insurers to adjust rates up or down within a flex-band of 7 percent. Since going into effect, over 100 new auto insurers entered into the market, rates decreased, and the state’s residual market plan insures under 200 drivers, compared to more than 1 million less than 10 years ago.
Louisiana, New Jersey and Texas, three of the most highly regulated states, advanced reforms in 2003 designed to serve as a catalyst for renewed competition in the marketplace. We have seen states that have a history of affordability and availability issues begin to embrace competition based models. Nebraska, where the push for personal lines modernization has been contemplated for several years, will be an important priority for the association.
PCI will strongly urge the Legislature to repeat its success with commercial lines modernization by allowing personal lines consumers to benefit from the same market-oriented reforms.
Ann Weber is regional manager and counsel for the Property Casualty Insurers Association of America (PCI). She is responsible for developing the association’s legislative strategy in various states, including Iowa, Kansas, Nebraska and Utah.