INDIANAPOLIS (Jan. 26, 2006)—The nation’s largest property/casualty trade association has blasted a proposed ballot initiative to regulate insurance in California, calling it a “stunningly misguided proposal.”
Late last week, self-styled consumer advocate Harvey Rosenfield unveiled a ballot initiative that “seems deliberately calculated to wreak havoc on California’s auto and homeowners insurance consumers,” in the words of Christian John Rataj, western state affairs manager for the National Association of Mutual insurance Companies (NAMIC). “In one fell swoop, it manages to violate every economic rule for sustaining a healthy, competitive insurance market.”
Rataj said the initiative would severely restrict insurers’ ability to accurately assess risk; impose price controls even more rigid and artificial than those currently in place; prevent insurers from maintaining adequate loss reserves from which to pay future claims; and invest the office of insurance commissioner with an unnecessary level of autocratic authority.
The initiative’s command-and-control approach to insurance pricing is especially perverse. According to George Mason University economist Donald J. Boudreaux, “Capping the price of insurance doesn't make it more accessible; it makes it less accessible and reduces the supply of insurance. That makes it more difficult for people to get insurance. If government caps the price of insurance, there are fewer insurers in the market and less competition. On the other hand, if you open up the market to a free-market system, you don't know how far down competition would drive prices.”
“California's insurance market is already over-regulated,” added Robert Detlefsen, NAMIC’s director of public policy. “If the Rosenfield initiative is enacted, it could lead insurers to flee the state, as they have at various times in New Jersey, Massachusetts, South Carolina, Texas, and Florida when these states adopted measures similar to those proposed by Mr. Rosenfield. Insurance companies simply can't do business in states where they're forced by government to operate at a loss.” Recognizing this, some congressional lawmakers have proposed creating a federal insurance regulatory authority as an alternative to the current system of state insurance regulation. “If the Rosenfield initiative were to succeed in California, it would undoubtedly add momentum to this movement,” said Detlefsen.
The initiative would make insurers liable for the government’s legal expenses if they unsuccessfully bring suit to overturn laws that raise constitutional questions. “This part of the initiative displays a palpable contempt for basic civil liberties,” Rataj noted. “It clearly intends to create a chilling effect on insurers’ ability to exercise their constitutional rights to due process and equal protection of the laws.” In addition, the initiative contains a clause that would make it a criminal felony for an insurance company to “willfully” violate any of its provisions—“irrespective of any intent to violate” the proposed law.
NAMIC will work closely with its state advocacy partner, the Personal Insurance Federation of California, and other stakeholders to protect Californians from anti-consumer initiatives that masquerade as consumer protection measures.
For further information, contact
Rick Nelson, APR, CAE
(317) 875-5250 Tel
(317) 879-8408 Fax