Following is the text of a letter sent today to George M. Reider, Jr., President of the National Association of Insurance Commissioners, from James C. Miller III, Counselor to Citizens for a Sound Economy:
“During the past year I have become quite interested in the economic implications of insurance regulation. As you may know, last August I spoke before the 25th Annual Meeting of the American Legislative Exchange Council (ALEC) in Chicago, where I questioned the tendency of many states to regulate the rates that insurers may charge for personal lines of property-casualty insurance. Shortly thereafter, my colleague Robert Detlefsen and I summarized our views on this matter in a Washington Times op-ed. Our contention, simply stated, is that consumers would benefit from the deregulation of insurance pricing, much as they benefited from the deregulation of other large national industries during the 1970s and 1980s.
“I understand from the minutes of the December meeting of the NAIC/Industry Liaison Committee that the subject of ‘Free Market Pricing’ was raised. According to an account of the meeting published in the National Underwriter [‘Insurers, NAIC Clash On Pricing,’ Dec. 14], Commissioner Glenn Pomeroy (your predecessor as NAIC President and chair of the committee) took umbrage at the inclusion of certain terminology in a memorandum submitted by a consortium of insurance trade associations. Mr. Pomeroy reportedly cited the memo’s reference to ‘price controls’ as evidence of its allegedly ‘harsh’ tone.
“According to the National Underwriter, although Mr. Pomeroy indicated that he would forward the industry group’s proposal for a public hearing on free market pricing for property and casualty insurance to the NAIC’s combined C & D committees, he added somewhat ominously that ‘it remains to be seen’ whether such a hearing will take place. The official minutes of the meeting confirm Mr. Pomeroy’s consternation at the memo’s characterization of insurance rate regulation as a system of price controls.
“I have no way of knowing whether the authors of the memorandum intended ‘price controls’ as a pejorative. But as an economist who has labored in the regulatory vineyards for most of my professional career, and as a former chairman of the Federal Trade Commission and former director of the Office of Management and Budget, I can think of no more objective or straightforward way of describing the current system of insurance rate regulation. Nor can I think of an insurance regulatory issue more deserving of serious discussion and debate. I sincerely hope that in 1999 the NAIC will encourage a thorough, uninhibited public debate on the merits of insurance price controls. An important step in that direction would be for the NAIC to create a public forum expressly for this purpose, as suggested in the industry group’s memorandum.
“During my service as a regulatory official, I found that the public policy process is most responsive to the needs of citizens when policymakers are willing to entertain even those ideas that conflict with their own strongly held assumptions and beliefs. Unfortunately, the ‘cool reaction’ (to quote again from the National Underwriter) on the part of some regulators to the frank use of the term ‘price controls’ is bound to have a chilling effect on future discussions of this vitally important issue. I cannot emphasize enough that for such discussions to be worthwhile, absolute candor on the part of all participants must be encouraged, not suppressed. Furthermore, participants must be assured that they will not be subject to recriminations in the event that they disagree with positions taken by regulators.
“I stand ready to assist the NAIC in whatever way I can as it moves to address the issue of insurance price controls in the year ahead. I look forward to working with you.”