Auto insurance regulation proposal draws fire from industry lobbyists

Several insurance groups are speaking out against proposed legislation in Minnesota they say would lead to insurer insolvencies

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Several insurance trade groups are speaking out against proposed legislation in Minnesota they say will lead to insurer insolvencies and limited rating factors.

The American Insurance Association and the National Association of Mutual Insurance Companies have submitted testimony to the state legislature in opposition to the auto insurance regulation bill.

SF 2770, among other things, prohibits insurers from refusing to renew an auto policy on the basis of a claim and prohibits the use of occupation, marital status or level of education as an underwriting standard. It also requires the commissioner to study auto insurance affordability and make specific recommendations to the legislature.

And, most troubling to the AIA and NAMIC, the bill requires an insurance rate rollback of 20% for policies issued and renewed after January 1, 2016. During the year, rates may only be increased if the commissioner finds that the insurer is facing insolvency.

“The rate rollback provisions in the bill suffer from constitution infirmities as shown by the holdings of courts in other states,” said Mark Johnston, NAMIC’s director of state affairs for the Midwest region. “They could also result in insurer insolvencies to the long term detriment of Minnesota consumers.”

Steve Schneider, Midwest region vice president for AIA, echoed those sentiments and said that the bill would hurt the industry’s ability to serve customers as it requires retroactive redistribution of funds paid by customers to ensure financial protection in the aftermath of an auto accident.

“We consider this proposal very troubling because it represents a complete reworking of state law without considering the solvency of our industry,” he said in a statement. “Insurers are businesses. To pay claims, they must stay in business. To stay in business, they must satisfy customers and meet the stringent financial solvency requirements enforced by the Department of Commerce.”

Schneider added that SF 2770 “brings those objectives into conflict.”

As to the limitation of auto insurance rating factors, NAMIC testified that the provisions in the bill “will result in cross-subsidization that harms rural Minnesotans and many others.”

Both groups said the legislature was failing to address the real reason Minnesota is struggling with auto insurance affordability: the cost of providing policy benefits.

“In addition to implementing the suggestions made by the Task Force and the Fraud Working Group, the state should end the practice of diverting funds from the Auto Theft Prevention Surcharge to cover other state spending,” Johnston said.

Instead, he urged funds to be used for “programs that reduce the burden of auto theft on consumers in general.”
 

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