RESOLUTION

WHEREAS, one of the primary purposes of insurance rate regulation is to provide consumer protection in a noncompetitive market by reducing the possibility of collusive pricing and overpricing of insurance products; and

WHEREAS, states use various methods of regulating insurance rates that vary depending on the state's objective, as well as the perceived condition of the state's insurance market; and

WHEREAS, states regulate through prior approval laws where insurers file information supporting the proposed rate, which must be approved by the state's insurance commissioner before the rate may be used; and

WHEREAS, other states regulate through a conditional prior approval system, which includes both states that require prior approval in a "noncompetitive" market as determined by the insurance commissioner, and states with flex rating laws with prior approval only for rate changes exceeding a specified percentage; and

WHEREAS, still other states have open or competitive rating, including states allowing the use and file, or file and use of rates, subject to insurance commissioner disapproval, and also including states with no rate filing or rate approval requirements; and

WHEREAS, prior approval systems are clearly the most burdensome, costly, and time consuming of the various regulatory systems used by the states; and

WHEREAS, Hawaii, under article 14 of the Insurance Code, has a prior approval rate filing system for general casualty, surety, motor vehicle, workers' compensation, employers' liability, property, and marine and transportation insurance, with certain exceptions; and

WHEREAS, one of the primary criticisms of rate regulation is that it imposes substantial costs in the form of higher consumer prices and lower economic output; and

WHEREAS, whether regulation of any market should be pursued should be determined by weighing the costs and benefits of the regulation; and

WHEREAS, there has been no recent, formal evaluation of whether Hawaii's article 14 prior approval system is still appropriate for Hawaii's insurance market, or whether its costs to consumers and regulated industry are justified by its benefits; and

WHEREAS, periodic evaluations of Hawaii's insurance rate regulation system should be performed if state regulation is to continue to be in the best interests of consumers and regulated industry; now, therefore,

BE IT RESOLVED by the House of Representatives of the Twenty-third Legislature of the State of Hawaii, Regular Session of 2005, the Senate concurring, that Hawaii's Insurance Commissioner is requested to periodically monitor, not less than once every three years, industry-wide ratemaking among insurers subject to regulation under article 14 of the Insurance Code; and

BE IT FURTHER RESOLVED that the Insurance Commissioner evaluate market conditions to determine whether an open rating system would be a viable option that would keep insurance available to, and produce long-term rates that are affordable for consumers in Hawaii; and

BE IT FURTHER RESOLVED that the Insurance Commissioner is requested to report findings and recommendations, including any proposed legislation, at least twenty days before the convening of the 2006 Regular Session of the Legislature; and

BE IT FURTHER RESOLVED that a certified copy of this Concurrent Resolution be transmitted to the Insurance Commissioner.

Report Title:

Insurance Rate Regulation; Open Rating