Insurers oppose action on rates Competitive rating called better despite jumps in premiums

February 12, 1997|By Dana Hedgpeth | Dana Hedgpeth,SUN STAFF

Insurance company lobbyists lined up yesterday to tell the state Senate Finance Committee that any changes in the state's new, relatively laissez-faire system of regulating auto and homeowners' insurance rates would be premature and would not control rate increases.

"The competitive market allows what's best for consumers because companies are forced to adjust their rates," said Marta Harting, an attorney for State Farm Insurance Co. "If it's given the chance, competitive rating will produce tangible benefits to consumers.

"You can't measure competitive rating on a year and a half's worth of data," she said.

State legislators passed a "competitive rating" law in 1995, allowing companies to raise auto and home insurance rates without prior hearings or approval from the Maryland Insurance Administration -- except in rare instances where the increases are deemed "unreasonably high."

Maryland has switched insurance regulation systems three times in the last 11 years, from a stricter system requiring prior state approval of rate changes to the competitive-rating system in which the marketplace rules. No other state has switched as much.

The last switch to the competitive-rating system was quickly followed by large increases in some major companies' rates. For example, Allstate Insurance Co. raised its homeowners' insurance premiums statewide an average of 17 percent and its statewide auto insurance rates an average of 5.5 percent. State Farm Insurance Co.'s statewide increases for home insurance averaged 8 percent and for autos 5 percent.

These increases prompted four bills to be filed this legislative session to repeal the system and refund any rate increases retroactively deemed excessive.

The only representative from a consumer advocacy group at the hearing cautioned legislators that there is "a need to restore a balance between consumers and the insurance industry."

"We've seen rate increases skyrocket from two major companies -- Allstate and State Farm," said Richard Vnermick, a representative for Maryland Citizens Action in Washington. "They're supposed to be putting people in good hands and being good neighbors to consumers with insurance."

According to the legislature's Department of Fiscal Services, the cost of homeowners' premiums increased 6.9 percent on average across the state since July 1, 1995. For auto insurance, the jump was 2.3 percent.

Insurance Commissioner Dwight K. Bartlett III reassured legislators that new MIA guidelines would more clearly define how companies' proposed rate increases will be evaluated by the state under the competitive-rating system.

Under the new guidelines, filings for rate increases of less than 15 percent -- or those that would result in company losses totaling less than 65 percent of premiums -- still will not trigger hearings.

He said these guidelines would be released later this week.

But state Sen. George W. Della Jr., a Baltimore Democrat and committee member who has proposed three of the bills to change the rating system, said: "Competitive rating is allowing the fox to guard the henhouse. We should let any portions that are deemed excessive by the commissioner be returned to policyholders."

Prince George's Democratic Sen. Paul G. Pinsky, a member of the committee who has proposed a fourth bill to change the system, added: "Competitive rating has been tried. We were given promises from the industry that it would open the market and lower rates. In the last 24 months, we've seen no regulation and people have been gouged. Now it's time to call it quits on the experiment and say the experiment failed."

Allstate representative Jim Emerson said his company needed its rate increases -- which ranged as high as 44 percent for homeowners' insurance in Howard County and as high as 70 percent for auto insurance in parts of Carroll and Frederick counties -- to cover excessive costs.

Pub Date: 2/12/97

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