State Regulation

Actuary Group Criticized for Deleting Ratemaking Principles Despite Opposition From Regulators, Consumer Groups

Low-Income Consumers and People of Color Likely to Pay More as a Result

Washington, D.C. — Ignoring criticism from regulators and consumer rights organizations, the Casualty Actuarial Society (CAS) has rejected efforts to reinstate its Statement of Principles Regarding Property and Casualty Insurance Ratemaking, which has provided important standards for setting insurance rates for more than three decades. The Principles were abruptly repealed in December 2020 in a secretive manner with no chance for input or discussion and to the surprise of many regulators and actuary-members of the Society. Dismantling the Principles gives insurance companies more leeway to increase prices on customers they deem less valuable – often the most financially vulnerable and underserved consumers – irrespective of their actual risk level.

The CAS Board met after requests from the National Association of Insurance Commissioners (NAIC) and Consumer Federation of America (CFA) to reconsider its rescinding of the Principles, but CAS rebuffed the regulators.

“This action by the CAS Board is alarming. Most letters the Board received from CAS members objected to the rescission, and the process excluding them made them feel ‘disenfranchised’,” said J. Robert Hunter, an actuary who is a member of CAS and serves as CFA’s Director of Insurance.  “Regulators, who must strive to ensure that rates are fair and not excessive, should be particularly upset with CAS’s intransigence and should adopt the Principles as rules governing actuaries and insurance companies,” said Hunter, a former Texas Insurance Commissioner.

The Statement of Principles (SOP), established by CAS in 1988, required that rates charged to consumers be based exclusively on risk and the costs associated with insuring that risk, explicating the requirements of state law that rates not be excessive, inadequate, or unfairly discriminatory. For decades, actuaries have been guided by these Principles, which focus on preventing arbitrary and unfair insurance prices. On December 22, 2020, with no public notice and no opportunity for CAS member or regulator input, the CAS Board rescinded the SOP, arguing that the SOP was “redundant” with other actuarial standards of practice (ASOPs) adopted by the Actuarial Standards Board.  In fact, no ASOP deals with final rates at all, so no “redundancy” exists.

In response, the NAIC’s Casualty Actuarial and Statistical Task Force (CASTF) met on March 9, 2021 and unanimously adopted a letter to CAS concluding that: “the Statement of Principles regarding Property and Casualty Insurance Ratemaking is too important of a document and too widely cited and relied upon to be rescinded at this time. We urge you to reverse the rescindment.”

In light of the CAS Board’s refusal to reverse its action, CFA has asked the NAIC in a letter, to act by indicating their intent to continue to use the Principles in regulation of insurance rates and begin the process toward adopting the rescinded Principles as an interim set of standards for actuaries (or, at least, for regulatory actuaries) to follow in making/approving final insurance rates in America.

“Unfair discrimination against people of color and lower-income Americans will get substantially worse if insurance companies and their actuaries are not bound by Principles of Ratemaking,” said Hunter. “The CAS has turned its back on the professional dedication to fair treatment of consumers in order to clear a path for insurers’ new, non-risk-based pricing strategies that will produce systematically unfair prices in the market.”

Contact: J. Robert Hunter, 703-528-0062