Indianapolis California insurance consumers and the state’s economy could be severely harmed if proposed changes are made to the state’s insurance rate approval structure. That was the message delivered in written comments to California insurance officials last week by the National Association of Mutual Insurance Companies (NAMIC).

NAMIC, in conjunction with its domestic insurer state advocacy partners, the Pacific Association of Domestic Insurance Companies, submitted comments to the California Department of Insurance (CDI) opposing proposed amendments to the Prior Approval of Rates Regulation. NAMIC has 106 member insurance carriers writing business in California —approximately 23% of the property/casualty insurance business in the state.

“These amendments … are conceptually flawed and unfairly discriminate against small- to mid-size property/casualty insurers in California ,” says Christian Rataj, NAMIC’s Western state affairs manager.

According to NAMIC, a proposed Efficiency Standard—a formula used in the ratemaking process to determine whether an insurance carrier's rates are reasonable and appropriate—is most problematic. The CDI is proposing to use a “formulaic insurance industry historic expense average” as a means by which to evaluate the reasonableness of an insurer's business expenses and operating costs, Rataj explains.

“The idea that a simple industry average, with a proscribed standard deviation range, could fully and accurately measure the business realities for both national carriers and small- to mid-sized insurers is suspect,” Rataj says. “National carriers, regional insurers, and small-to-mid-sized domestic insurers all have different organizational structures, marketing approaches, and business strategies” that influence an individual insurer’s operating expenses.

Of particular concern to NAMIC are proposed amendments affecting an insurer’s rate of return.

“The proposed amendments do not promote financial stability of insurers and/or the economic vitality of the insurance industry,” Rataj argues. “The CDI proposed rate of return will adversely affect the industry’s ability to obtain necessary capital for growth and will ultimately reduce market competition in the state of California .”


Source: National Association of Mutual Insurance Companies

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