INDIANAPOLIS (Feb. 18, 2009) – Flexible rating and underwriting freedom for property/casualty insurers lead to increased competition for consumers, according to the National Association of Mutual Insurance Companies (NAMIC). NAMIC yesterday urged a Connecticut legislative panel to support the continuation of a flex-rating statute but oppose a ban on credit-based insurance scores for auto insurance.
“Insurers use credit-based insurance scores because they are valid and powerful predictors of claims and losses,” testified Paul Tetrault, NAMIC’s Northeast state affairs manager. “Insurers using insurance scores are able to extend coverage offers and provide lower prices to more applicants and policyholders than they would otherwise.”
The Legislature’s Insurance and Real Estate Committee is considering a bill that would prohibit insurers from using credit-based insurance scores in the underwriting and rating of auto insurance. “Presumably, the provisions that would do so were included in HB-6444 in order to provide some benefit to consumers,” Tetrault told the committee. “Their effect, however, would be precisely the opposite.”
As numerous recent studies have shown, credit-based insurance scores are effective predictors of claims and claims costs and a majority of consumers benefit from their use, Tetrault explained. Banning their use would hamper insurers’ ability to use a valid predictive tool to assess risk and price it appropriately and interfere with the efficient functioning of the insurance market, “leading to cross-subsidization and higher prices for insureds with favorable credit histories.”
The committee yesterday also heard testimony on HB-6280, which would continue flex-rating for personal risk insurance rate filings. Since 2006, property/casualty insurers in Connecticut have been allowed to adjust their rates without state approval, within certain parameters. The statute is due to sunset in July.
“Flex-rating laws promote competition among insurers because they provide confidence that an insurer can lower rates to attract more business but increase rates if necessary due to changing results and market conditions,” Tetrault told the committee. “Flex-rating statutes promote competition by providing insurers with confidence regarding their ability to adjust rates in the future.”
The proposal would extend the flex-rating statute for two years. Tetrault urged the committee to extend the sunset much further or eliminate it altogether. “A flex-rating statute will be more effective in providing the benefits of competition if its provisions provide insurers with a sense of stability regarding its continuation.”
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