There has been a lot of dialogue on the “hybrid” insurance regulation model proposed by the Federal Insurance Office yesterday, but according to insurance law expert Michael Nelson, the real story for producers is in the list of nine proposed areas for direct federal intervention—including one that could impact personal lines sales.
“I think what will be particularly interesting to agents and brokers is recommendation six, as it concerns rate-making for personal lines,” said Nelson, chairman of the firm Nelson Levine de Luca & Hamilton. “I think that’s a subtle opening for more uniformity on personal lines from state-to-state as opposed to very different approaches to personal lines insurance as it exists right now.”
Recommendation six in the FIO report reads:
FIO will work with state regulators to establish pilot programs for rate regulation that seek to maximize the number of insurers offering personal lines products.
While the recommendation appears to increase competition for personal insurance line carriers, Nelson believes it could actually increase the commoditization of personal lines products.
“As a personal lines product becomes more uniform, it might be something agents would be uncomfortable about from the standpoint of advancements in technology,” Nelson said. “It would make them less integral in the buying process. If ultimately less state-specific products are available, a more uniform national product would become the norm, and arguably some folks would want to work on a platform without agent involvement.”
On the other hand, Nelson said, the recommendation for a national producer licensing system through NARAB II might increase a producers’ targeted product.
“Conversely, agents could—with uniform licensing issues—operate in many states more easily,” he said, especially with regard to selling personal lines products.
Greg Wren, a state representative in Alabama and president of the National Coalition of Insurance Legislators, said he believes there will be some blowback on creating a nationalized rating system, however.
“We seek our role,” Wren said. “Whether people like it or not, we are a state-based system and there is a tremendous galvanization on this issue. It’s not partisan. State legislatures understand our roles and we can rally around our role.”
What do you think? Will the FIO recommendation lead to a better market share for producers in the personal lines market, or increased commoditization?
