New APCIA Initiative Looks to Help ‘Backbone’ of Industry With Regulatory Costs

Small and midsize carriers “form the backbone” of the private insurance market, and they are being bogged down by the cost of regulatory and corporate compliance. The American Property Casualty Insurance Association (APCIA) is starting an initiative to try and do something about that. David Bell, chair of the APCIA and CEO of an insurer in the small to medium category – ALPS Corp., said a recent study by the APCIA found that “these companies bear disproportionately higher compliance costs relative to premium than larger insurers.” “The study also found that scale materially affects compliance impacts on the expense ratios,” Bell said recently at APCIA’s annual meeting in Boston. “A fixed regulatory cost does not have a fixed impact between large and small carriers.” Related: APCIA Says Claims Data Standards in Works to Better Combat Criticism Eight out of 10 members of the APCIA have less than $2 billion in direct written premiums. And while they may not have nationally well-known names or move financial markets at earnings time, they “insure farms, professionals, small businesses, homes, and communities across the country,” Bell said. “Collectively they give our private competitive marketplace much of the depth, specialization and resilience that it enjoys.” However, discussions with 20 small and medium carriers on APCIA’s board confirmed there is a need to reduce regulatory costs that are amounting to what Bell described as a “scale tax” that is paid “not because the company presents more risk, but because it has fewer premium dollars across which to spread a largely fixed cost.” “Delays in approvals, filings or licensing, costly and inconsistently applied state exam formats – they don’t just cost money, they cost opportunity,” Bell said, adding that when the admitted market becomes slower, capital and product innovation migrate to the excess and surplus lines market – a “structural rather than situation” migration. APCIA’s proposed Small and Medium Sized Insurer Regulatory Cost Initiative (SMSIRCI) will work to pursue regulatory improvements and benefits for carriers that will hopefully trickle to consumers once changes positively affect the expense ratios of small and medium-sized carriers. (Bell acknowledged the initiative’s less-than-catchy acronym. “It sounds more like a wifi router password than it does an insurance initiative. So the first act of regulatory simplification will be simplifying the name.”) Bell said he expects policymaker scrutiny as some historical norms are challenged, but he believes the initiative can include cooperation with state regulators to pursue improvements that benefit consumers while maintaining a competitive insurance marketplace. Topics Legislation