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“Fair Accountable Insurance Rates Act,” also known as the FAIR Act, claims to provide easy access to health and automobile insurance coverage for all Coloradans and create new reporting requirements for the insurance companies.

Obviously, the raw effect on consumers without this requirement is easy to see. Multi-billion dollar insurance companies could and probably did what they pleased without any recourse or consequences, even if it meant offering unaffordable coverage.

The Fair Accountable Insurance Rates Act eerily resembles the Sarbanes Oxley Act passed by Congress in 2002, in an effort to restore faith in the accuracy of corporate financial audits and eliminate future Enron’s and WorldCom’s. Basically, Sarbanes Oxley serves as a watchdog over corporations registered with the Securities Exchange Commission.

It all sounds good for consumers, doesn’t it? Unfortunately, Sarbanes Oxley has been criticized for a few weaknesses, some of which may likely happen as a result of the FAIR Act. For example, costs to a company to implement the regulations take time and money away from the consumer product, especially in smaller companies with fewer resources. Also, in a real world context, employees hired by a corporation to essentially “whistle-blow” to the SEC for corporations’ willfully withholding material information have few incentives to tattle tale, for fear of discrimination or demotion.

As for the FAIR Act, some questions come to mind. What if an insurance company’s rate is currently high, will they go through the trouble required by the Act to lower the rates? If a company does go through all the trouble, the commissioner of insurance still has the authority to declare a rate is too low, or “inadequate.” And, who is this insurance commissioner with all the power? Is he or she a neutral decision maker?

Patricia-Anne Tom, of the Insurance Journal, brought light to the potential effects of the FAIR Act. Insurers were understandably opposed to the bill. Kelly Campbell, the regional manager for Property Casualty Insurers Association of America (PCI) sees the FAIR Act as a “classic example of over-regulation.” PCI says the prior approval regulatory system and new reporting requirements will add costs and delays without providing any consumer benefit. Campbell also adds that establishing prior approval of prices will preclude companies from adapting to changes in the market and this process will serve only to hurt consumers. Campbell claims the FAIR Act gives the commissioner of insurance some very broad powers.

As for whether Campbell’s insights are true, Colorado must wait and see. One thing is for sure; insurers’ have a significant load of work to do in the future.

Niki Skaggs
Law Clerk
J.D. Candidate 2009
University of Denver

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