【正文】 udes an initial review of cost drivers that reveals some interesting patterns that warrant further investigation. We conclude by distilling the principal insights from South Carolina’s experience.B. Auto Insurance Regulation in South CarolinaLike most other states, South Carolina utilized a prior approval regulatory system for auto insurance after the enactment of the McCarranFerguson Act in 1945. The states’ imposition of uniform “bureau rates” for the principal propertycasualty lines in the postwar years is well documented. The constraints on price petition gradually eroded over time as insurers gained increasing flexibility to deviate from uniform prices. Some states eventually removed prior approval requirements for auto insurance rates to allow market forces to operate more freely. Other states, including South Carolina, retained prior approval requirements and tightened price limits when costs escalated. In South Carolina, insurers were not required to adhere to mandatory bureau rates, but were required to individually file rates for prior approval. In 1975, legislation took effect in South Carolina that prised a number of regulatory provisions that were popular in the more activist states. These provisions included: Compulsory liability insurance。 Mandatory service requirements for auto insurers。 Establishment of the Reinsurance Facility。 Implementation of a mandatory, uniform merit rating plan。 and A limited number of designated agents were allowed to sell insurance directly through the Facility.However, these regulatory provisions proved to be problematic in the years ahead. Subsequent legislative and regulatory tinkering made some improvements but failed to fully solve the problems. This led to the prehensive restructuring in 1999 (based on legislation enacted in 1997). Below we review the most important elements of South Carolina’s regulatory system and how they were modified in parison with other jurisdictions. Figure 1 provides a historical timeline of key developments in South Carolina auto insurance regulation.1. Regulation of Price LevelsSouth Carolina required the prior approval of all private passenger auto insurance rates until 1999. At first glance, the pre1999 South Carolina system might appear similar to that of other prior approval states (see Box 1). The South Carolina law contained the standard prohibitions against excessive, inadequate and unfair rates. Insurers also were prohibited from employing socially unacceptable criteria in pricing and underwriting, such as race and religion. Insurers were required to file and receive regulatory approval of their auto insurance rates before they could be put into effect. Advisory organizations also played their typical role in submitting advisory loss costs for regulatory approval (full rates prior to 1991), which insurers could reference in their individual rate filings.There were some additional restrictions in South Carolina that were shared only with the most “activist” prior approval states (summarized in Box 1 and discussed further below). It also is necessary to look beyond statutes and regulations to the policies, procedures and actions that enforced them. A number of observers have noted that regulatory stringency can vary greatly among states with similar systems. In this respect, it appears that South Carolina enforced tighter price ceilings than the average prior approval state. This is reflected in the disposition of advisory loss cost filings. InTable 1, we see that regulators reduced advisory loss cost increases for bodily injury liability (BIL) coverage to a greater degree in South Carolina than in other states.The apparent greater stringency of South Carolina regulation is also reflected in the Conning amp。 Company rankings of states in terms of their insurance regulatory environments. In periodic surveys conducted from 19841991, South Carolina’s score declined from to and it ranked 45th among 51 jurisdictions, indicating that insurers had a very negative view of its regulatory climate. In the 1994 survey, South Carolina’s score improved to and its rank rose to 41st – better, but nothing to boast of.On March 1, 1999, a “flex rating” system went into effect in South Carolina as one of its regulatory reforms. Under the new system, insurers do not need prior approval to implement rate changes (increases or decreases) that are less than or equal to seven percent. Rate filings for more than a seven percent change must still receive prior approval. Also, insurers are limited to one “flex” rate change (not requiring prior approval) during any 12month period. The insurance department also has approved larger rate changes, allowing insurers to differentiate their rate structures and risk portfolios.2. Restrictions on Rate StructuresAnother issue with South Carolina’s previous regulatory system was its constraints on risk classification and rating. While it is not unmon for prior approval states to place some limits on insurers’ rate differentials between risk classifications and geographic areas, South Carolina went further. Importantly, prior to Act 154, South Carolina statutes authorized the Director of Insurance to promulgate uniform classification systems, merit rating plans, and rating territories, and to require insurers to grant safe driver discounts of no less than 20 percent. Rate differentials between territories also were capped.Furthermore, merit rating was limited to a threeyear experience period. An analysis by the National Association of Independent Insurers (NAII) indicated that, in 1989, South Carolina was one of 14 states with some form of explicit restriction on class or territorial rates for auto insurance.Rate pression occurs when regulators constrain price differentials between risk classifications or territories. To provide some preliminary evidence, consider Figure 2 which reveals a direct relationship between average los