INSURANCE AND INCOME SECURITY
To enable consumers to obtain insurance that meets their needs, CFA calls upon the Congress, the National Association of Insurance Commissioners (NAIC), state legislators and regulators, and private sector providers to adopt, implement, and enforce the following principles:
1. The primary need for reform is the adoption of a consumer presence in each state. A funding system should be created in each state to encourage consumer representation in formal and informal insurance legislative and regulatory proceedings.
2. States should either mandate pre-approval of rates or deregulate if the requisites listed in Section IV are met. In states that opt for regulation, ratemaking practices should be carefully scrutinized to ensure that no unfair discrimination exists, that rates are fairly related to the benefits provided, and that insurers mathematically reflect investment income in the calculation of rates.
Public hearings, including the opportunity for a contested proceeding, should be held on any change in rates that affects a significant portion of a state's population and that is subject to regulatory review, regardless of the state's rating or filing procedure. In all cases consumers should have the right to demand a hearing.
3. Availability of insurance at equitable rates should be guaranteed to those who need it. State definitions of insurability should be established to end arbitrary practices relating to initiation and termination of insurance policies. Termination should be only for cause or non-payment of premium.
4. Classifications should be scrutinized to assure that each classification slot results in broad groupings of risks that each classification is socially acceptable, that classification results in true "separation of risks," that each classification is determined by causation factors, and that each classification provides incentive values for risk reduction.
5. Minimum cost/benefit relationships as a condition of sale for each line of insurance should be established by the state regulator.
6. Insurance contracts and bills should be written in clear language understandable to lay persons.
7. To make competition more effective, full disclosure of price, key coverage provisions, and service levels using indicators of each that enable the public to compare policies should be required prior to consumer purchase or renewal of insurance. State shopping guides and other innovative consumer aids, using such media as cable television, computer bulletin boards and telephone hotlines, should be initiated by state insurance regulators to better inform the consumer.
8. States should monitor claims handling. Punitive damages statutes should be adopted in states to allow for suits when claims are unnecessarily delayed or denied.
9. Insurance consumers should receive complete disclosure on price, service, solvency and other information needed to make an informed choice. Credit reports and/or credit scoring should not be used to determine insurability or insurance pricing.
I. CONSUMER PARTICIPATION
A. Consumer Check-Off -- Approximately one percent of personal lines consumer premiums in property and liability insurance goes to insurance company employees and organizations, under the expense provision "Boards and Bureaus," for such purposes as the lobbying of state and federal legislatures and appearances at hearings to increase rates. We call upon states to adopt legislation to require a consumer check-off to allow at least half of the amounts presently collected, at the consumer's option, to be given to bona fide consumer organizations dealing with insurance matters to further consumer interests through appearance at rate proceedings, legislative hearings, and in other forums affecting insurance issues.
B. Citizens Insurance Boards -- CFA calls upon each state legislature to adopt Consumer Insurance Boards, and provide for the funding. Alternatively, consumer advocate offices in each state could be given authority and funding to represent consumer interests in insurance matters, as is done in Texas.
C. Consumer Control -- We urge that policy holders of mutual insurance companies be restored their due rights to control and direct the affairs of their own companies. We urge consumer control of Blue Cross and Blue Shield plans and state action to maximize consumer ability to control health care cost inflation. (See HEALTH AND HUMAN WELFARE)
D. NAIC Process and funding -- We call on NAIC and the individual state commissioners to adopt strict rules on conflicts of interest, including prohibition of employment by the insurance industry for two years after a commissioner leaves office. NAIC must continue to strive for balance to industry domination of meetings and proceedings by providing consumer and public representation and participation on the substantive committees and task forces. We commend the NAIC's adoption of the Consumer Participation Funding Project but recognize that much greater funding will be needed to assure effective and meaningful participation. Cost of such consumer participation should be borne by the NAIC or state regulator.
To help minimize excessive insurance industry influence of the NAIC, CFA supports independent funding for the organization. CFA calls on the states to independently fund the NAIC through allocating a small percentage of premium taxes (about O.4% at current revenue levels) to the NAIC, interstate compacts, seeking federal funding or some other mechanism to help ensure the NAIC’s independence.
E. Intervenor Funding -- we call upon the states to adopt intervenor funding mechanisms to encourage consumer participation in regulatory proceedings.
II. DISCRIMINATION IN INSURANCE
A. CFA calls on Congress and state legislatures to prohibit discrimination in the pricing, availability, scope of coverage, benefits, and cancellation in all types of insurance on the basis of race, religion, national origin, citizenship, sex, sexual orientation, credit score, income, education or other irrelevant considerations. This prohibition should apply to existing policies as well as future policies.
B. CFA supports legislation that prohibits unfair discrimination in the marketing, servicing and pricing in automobile, homeowners and other insurance, which affect millions of Americans, especially in our cities.
C. The practice of discriminating against disabled persons as a class in insurance should be eliminated. Government regulation should ensure that consideration is made of the particular problems of the disabled and that each case is handled on its own merit, especially in the cases of accident, health, and life insurance.
D. To prevent discrimination against groups perceived to be at risk, state insurance regulators should review policy formats and underwriting practices of life and health insurers and prohibit the use of any questions or test procedures that are invalid.
E. Underwriting guidelines should be public and subject to state approval to ensure that guidelines are related to risk and statistically supported.
F. Past history of claims or inquiry about coverage on a particular property should not be used to deny coverage if the property is sold.
G. If a consumer is denied coverage of insurance, the specific reasons for denial must be given and the consumer should have the right to challenge that denial before a neutral third party.
III. INVESTMENT INCOME IN RATEMAKING
In 1984, the NAIC adopted the use of total return ratemaking for states that regulate insurance rates. This total return methodology, which reflects investment income on the float of consumer dollars, will be fair for consumers and will result in lower prices but will enable insurers to have expectations of fair rates of return. When Texas instituted this method, rates fell by one-half billion dollars. Universal adoption of so obviously needed an approach to regulation of rates should not be further delayed.
IV. COMPETITION
CFA calls on Congress to repeal the McCarran-Ferguson Act, and on state legislatures to repeal insurance industry exemption from state antitrust laws. We support the general principle that competition in most industries can stimulate the supply of goods and services at reasonable prices. Therefore, as necessary protections come into existence and can be adequately enforced, we favor moving toward reduced regulation.
Prerequisites to open price competition include:
A. Provision to consumers of adequate, timely, and useful price, service, and other information needed to make an informed choice. We ask the states to require that underwriting guidelines be made public to assist in shopping and inform consumers about qualifications for lower insurance rates.
B. Elimination of unfair discrimination in marketing and underwriting practices, deceptive and misleading marketing methods, arbitrary refusals to insure, surcharges, and excessive rate differentials.
C. Review of data collection and limitations on rate setting and advisory functions of rating bureaus to prevent violation of appropriate antitrust standards.
D. Adequate investigatory and enforcement powers for regulators to correct and prevent anti-competitive behavior.
E. Removal of unnecessary barriers to insurance company entry to, and competition in, a market.
F. Elimination of other anti-competitive state laws such as law prohibiting group sales or agent discounting.
Without these corrections and without availability at normal voluntary rates, there will not be an efficient, equitable insurance market. Where a free market cannot be made to work, regulation must be substituted for it.
A. We support entry of additional sellers in competition with insurance companies and agencies, subject to regulatory oversight to assure fiscal reliability and honest sales practices.
B. CFA supports the creation of both private nonprofit and government sponsored insurance and risk-pooling plans to meet insurance needs of individuals, nonprofit organizations, businesses and trade and professional groups not adequately and economically served by the insurance market. Such plans may serve as one of the yardsticks against which insurance industry performance can be measured. If the federal Risk Retention Act is amended to create enforceable financial standards, consideration should be given to allowing risk-retention groups a freer hand in operating across state lines.
V. FEDERAL TRADE COMMISSION
CFA calls upon Congress to broaden, not restrict, applicability of the Federal Trade Commission's (FTC) consumer protection and antitrust powers to the insurance industry. We urge the Congress to restore the FTC's ability to study insurance and adopt guidelines. We particularly oppose restricting the FTC through the appropriations process, in which public hearings and deliberations are limited.
VI. TAXES
CFA urges that Congress examine the special tax treatment for the insurance industry and its impact on the availability and affordability of insurance.
VII. DATA COLLECTION
CFA believes the federal and state governments should collect data in order to provide fair, accurate, and available information about insurance rates, claims, expenses, fraud losses, profits, losses, investments, reserves, and payout details by class. CFA supports states' efforts to independently gather data without insurance industry control of the data collection process.
VIII. AUTO INSURANCE
CFA endorses enactment of federal no-fault auto insurance legislation, and state legislation in those states that do not already have it, which includes all of the following:
A. Unlimited medical and rehabilitation benefits.
B. Reasonable work loss benefits.
C. Reasonable survivor benefits.
D. Coordination of benefits with other coverage, at the consumer’s option.
E. A "verbal threshold" for litigation based on the nature and extent of injury, rather than the claimed amount of loss.
CFA opposes “auto-choice” proposals that limit the ability of consumers to fully recover in the case of serious injury. No-fault that protects consumers, as described above, should be considered by Congress and the states.
CFA supports the experimentation on a state level of various forms of automobile insurance paid for through a gasoline user fee.
CFA encourages state insurance regulators to create aggressive anti-fraud bureaus and encourages the insurance industry to establish fraud sections within their companies and to coordinate efforts with local, state and federal insurance and law-enforcement agencies.
CFA supports passage of auto insurance pre-inspection laws, as has been done in New York, New Jersey, Massachusetts, Florida and California.
CFA opposes legislation or regulation that gives auto insurance companies, even by consumer approval, access to the consumer’s automobile “black box” data, even when the stated purpose is to possibly reduce consumer auto insurance costs. (See CONSUMER PROTECTION, Section III)
IX. LIFE INSURANCE
CFA supports required disclosure of the comparable costs and rates of return of both similar and dissimilar life insurance policies through a simple and standardized method, including the use of standard "yardsticks" wherever possible, and the ready availability of underlying technical data to those who want it. In particular, the real rate of return or interest on the savings portion of life insurance must be disclosed to consumers to assist comparison shopping.
Specific life insurance abuses should be addressed vigorously by state regulation to eliminate the predatory practices of insurers in credit life insurance (the reverse competitive phenomenon), college life insurance marketing practices, debit or industrial insurance (expenses should be sharply reduced in this line of insurance,) and abuses targeting older persons in such areas as pre-need funeral and burial insurance and limited value life insurance. We call on the NAIC to establish minimum standards to determine the percentage of premium to be paid out as benefits to consumers below which would be considered an unfair or deceptive trade practice.
Abusive insurance replacement sales efforts, which may cause unwary consumers to trade good life insurance policies for less valuable coverage, must be addressed by adequately enforced and effective replacement regulation and disclosure, including agent commission structures designed to prevent costly and abusive replacement practices. CFA opposes anti-consumer and anti-competitive restrictions on marketing of savings bank life insurance. CFA calls upon the NAIC and the states to adopt clear and understandable illustrations based upon guaranteed projections only.
X. TITLE INSURANCE
CFA recommends major reform in the sales practices and rate structures of title insurance. We urge state legislatures to reform the costly search system by instituting a compulsory "Torrens" record system, modernized record-keeping and "Marketable Title Acts." We call upon the Department of Housing and Urban Development to promptly institute and carry out the Torrens system demonstration project under section 13 of the Real Estate Settlement Practices Act.
Title Insurance companies should be required to provide discounts on title insurance for refinanced loans.
XI. HOMEOWNERS AND COMMERCIAL PROPERTY INSURANCE
Insurance must be made available at reasonable rates to individuals and companies who wish to retain or purchase property, particularly in urban areas. Restricted access to the voluntary market, removal of agents from the cities, and discriminatory rates add to the deterioration of cities and discourage urban renewal.
Over the past few years, several states have been exposed to large disasters, e.g., earthquakes inCalifornia, hurricanes in Florida and other coastal states. The insurance industry has responded by restricting the availability of insurance for these risks and pulling out of some areas. Acknowledging that this is a complicated issue and varies depending upon the risk and the geographic area, Congress should direct studies of the issues and the alternatives proposed to help decrease costs from disasters and ensure that consumers have access to affordable and adequate coverage.
A. CFA opposes any federal catastrophe insurance plan that does not have as its priority mitigation of loss, does not guarantee insurance availability to consumers at reasonable prices for homes built according to such mitigation standards, and that interferes with the development of private insurance and reinsurance markets (including risk securitization and other private capital market approaches).
B. The FAIR plan, designed to serve as a market of last resort, has become a dumping ground for risks many companies (looking for higher returns on their investments) refuse to cover. The FAIR plans frequently charge excessively high rates, provide inadequate coverage, and are anticompetitive. CFA calls upon states to take steps to ensure that FAIR plans meet the needs they were designed to address. We urge legislation to encourage urban revitalization by requiring the insurance industry to provide affordable coverage for insurable risks faced by inner city businesses and homeowners. CFA encourages further experimentation in anti-redlining efforts, building upon the trials and experiences in Atlanta, Houston, and Philadelphia.
XII. LIABILITY CLAIMS
Cycles in the insurance industry affect the price and availability of liability coverage. When it becomes difficult for certain risks to find insurance, market upheaval results. There is a need for unbiased data on liability claims, including the incidence of claims and the amount of economic damages suffered in proportion to settlements and court awards, all of which must be contrasted with liability premiums collected by insurers.
CFA opposes any change in the liability system that would reduce the incentives for maximal efforts to reduce injuries and unsafe conditions or products.
In addition, any "reform" of the tort system must not reduce an injured person's right to redress unless new rights of equal value are provided in their stead. This means that the right to sue should not be compromised unless the victims of medical injury and defective products are given other, and equally effective, means of obtaining compensation.