Bill may provide leeway to auto insurers

Tuesday, April 24, 2001 | 11:11 a.m.

Proposed legislation would allow companies more flexibility in setting rates for car insurance.

State Insurance Commissioner Alice Molasky-Arman told the Assembly Commerce and Labor Committee Monday that "rates are high and rising. There are too many auto accidents." And she said a person's ability to afford insurance is becoming an issue.

Senate Bill 4 would permit insurance companies to raise or lower their rates by up to 7 percent without obtaining the commissioners' approval. As it stands, rate increases or decreases must first be passed by Molasky-Arman.

Nevadans pay an average of $952 annually for car insurance, about 26 percent higher than the nation's average.

The state is the seventh highest nationally in auto insurance rates. And it is fifth in the nation in the frequency of bodily injury from auto accidents. Las Vegas has the second highest rate in the nation of motorists who run red lights.

Molasky-Arman and her staff outlined the current state of the auto insurance industry, and the committee is examining a bill to lessen regulation of auto insurance rates.

Samuel Sorich of the National Association of Independent Insurers, which represents about 200 companies in Nevada, said this bill would encourage greater price competition. It would permit companies to quickly adjust their rates to changing market conditions.

The insurance commissioner would still have authority to examine the rates to make sure they are not excessive or unfair. But that would come after the new rates became effective. She still would have to rule first before rates higher or lower than 7 percent can go into effect, Sorich said.

Sorich said it takes a long time between the preparation of a rate application and its approval. This bill would allow the commissioner's office to concentrate on significant rate increases.

But some committee members were skeptical of the bill promoted by the insurance companies.

Assembly Majority Leader Barbara Buckley, D-Las Vegas, said there is already competition. "This takes away oversight. I believe in oversight" to make sure the rates are not discriminatory or unfair. She wondered why Nevada should remove its present system.

Assemblyman David Goldwater, D-Las Vegas, said he foresees a scenario in which there would be continual rate increases of 2-3-4 percent every year. He referred to it as "rate creep," and he wondered if the companies might uniformly boost rates.

Sorich said that is prevented by the federal antitrust law. And he said that out of the 10 states with the highest premiums, that eight require prior approval. Premiums, he said, are set by loss costs, medical costs and "are not determined by the mode of regulation."

SB4, Sorich said, is not deregulation. The law will still allow the commission to examine whether rates are too high or too low. Also endorsing the bill were Robert Feldman of Auto Agents Alliance of Nevada in Las Vegas and Scott Craigie of Farmers Insurance. Feldman said similar laws are in effect in New York, Texas and South Carolina and, "The rates have not gotten out of line."

Molasky-Arman said this was a compromise bill. "It does not remove the ability of the commissioner to approve or disapprove of rates."

But Buckley questioned if the present system was broken. Molasky-Arman said the industry believes it is inhibited in regard to making changes. And the companies feel a reluctance to reduce rates.

The commission said her division has a "good response time" in approving rates, which must be completed in 60 days. "This is not going to diminish our review of rates," she said.

She suggested some measures that might help hold down rates. For instance, the state could establish an insurance council to look at the factors that are causing increases; it could reduce the drunken driving level from 0.10 to 0.08; improve the roads; increase public transportation; enforce seat belt use and restrict teen driving.

Some committee members were upset when they learned that a person's credit rating is taken into account when setting the rates. Goldwater complained an individual could have a perfect driving record but may be late in paying a few bills and, consequently, the driver "gets jacked up rates."

Molasky-Arman and Janice Moskowitz, an actuary at the insurance division, said that was only one factor used by insurance companies in setting rates. Moskowitz said that is common across the nation, and only Washington prohibits the practice.

Goldwater said, "When I hear credit scores, that frightens me."

Assemblywoman Chris Giunchigliani, D-Las Vegas, said the insurance companies were "not only whacking the ones with poor credit" but they use ZIP codes upon which to base rates. And those are usually in the lower income areas.

Moskowitz said those ZIP codes are not meant to be based on the income of the area but rather the accident rates and other issues.

The committee did not take action on the bill.