Policy Documents

Why Not the Best? The Most Effective Auto Insurance Regulation

J. Robert Hunter –
June 1, 2001

This report was prompted by the National Association of Insurance Commissioners (NAIC) decision at their spring meeting of 2001 to consider deregulation of personal lines of property/casualty insurance.
In late 1999, Congress passed the Gramm-Leach-Bliley Act (GLBA). This allowed banks to sell insurance products. In February 2000, The American Council of Life Insurers (ACLI) voted to look into a federal role in insurance out of fear that the banks could get products similar to those being sold by the life insurers approved at a single point and quickly.

The ACLI vote prompted the NAIC into jettisoning its agenda for the Spring 2000 Meeting and instead beginning work on a Statement of Intent, which was to guide the organization through 2000 as it reinvented insurance regulation.
The Statement of Intent called consumer protection their “primary goal.” But that was not the real goal – the real goal was to discouraging insurance companies from favoring a federal approach.

In 2000, NAIC created committees whose names belied the idea that consumer protection was the prime goal. They had a committee for “National Treatment of Companies” but none for “National Treatment of Consumers.” They had a “Speed to Market” committee to help companies get products, even anti-consumer products, into the market, but no committee to speed information or other needed assistance to consumers.

Seeing this trend, in September 2000, the consumer community united to present to the NAIC its white paper, Reinventing State Insurance Regulation for the Benefit of Consumers –A Time for Change. In it, eight major principles were set forth, consisting of over 70 sub-principles.

With the exception of the privacy area, the NAIC either ignored rejected or put off consideration of almost all of these principles until after the industry-sought changes are implemented. Thus the NAIC refused to improve data to access market performance, offered no new information to consumers, suggested commercial lines deregulation without applying antitrust law, and so on. This greatly exposes consumers, particularly small commercial consumers, to risk of abusive insurer practices.

At the same time that consumer concerns were stalled or rejected, the NAIC asked states to adopt memos of understanding, or even use administrative ways around their state laws, to implement areas of eased oversight that the insurance companies sought.

The NAIC told consumer groups that we should not worry about the lessening of “front-end” regulation because they intended to strengthen “back-end” market conduct review. But, while the Speed to Market Committees met more often than weekly to finish their work on deregulating commercial lines of insurance, between the September and December meetings of the NAIC, the Market Conduct Committee never met at all.

When it finally met at the December 2000 NAIC meeting, the Market Conduct Committee did not propose strengthened market conduct review but debated self-certification methods where the companies would review themselves. Not only that, most of the discussion centered on ways to achieve “privilege” for such self-certifications so that they would never become public, even in discovery in the event of a lawsuit.

Consumer representatives who attended the weekly meetings of the Speed to Market committees between September and December 2000 observed firsthand the bias toward the insurance industry and against the consumer in each substantive proposal and in implementation of the proposals. Whatever the consumers wanted was either rejected without comment in executive session or put off for possible study in 2001/2 whereas the vast majority of what the insurance companies wanted was adopted and to be fully implemented by June 2001.

Emboldened by the remarkable progress in gutting consumer protections they made in 2000, the industry spoke at the spring 2001 NAIC meeting and told the commissioners that their ambitious effort to gut regulation was too little and too late. They demanded faster action and deeper cuts in consumer protections, particularly in personal lines. The commissioners offered no objection to these threats. In fact, they adopted a proposal to start studying personal lines, contrary to their earlier assurances to consumer leaders, which leads to this report.