The R Street Institute recently released a report card grading the insurance regulatory environments in each of the 50 states. The report card measures states on 14 objective variables to gauge the extent to which their insurance regulatory environments embody the principles of limited, effective and efficient government.
R Street measured states on the concentration of their home and auto insurance markets and relative size of their residual markets; the effectiveness of state solvency and fraud regulation; the transparency and politicization of insurance regulation; the tax and fee burdens placed on insurance markets and the proportion of fees used to support insurance regulation; and the relative freedom granted to insurers to set risk-based rates, including through the use of credit and territorial information.
Click “next” to see the five states that made straight A’s and the five states that flunked in the R Street report card. Click here to see the full list ranking all 50 states.
Editor’s Note: R.J. Lehman is public affairs director at R Street Institute and is the author of the 2012 Insurance Regulation Report Card. R Street is a non-profit public policy research organization based in Washington D.C. whose co-founders previously were the staff of the Heartland Institute’s Center on Finance, Insurance and Real Estate.
Points (out of a possible 55): 11
Idaho was a solid performer across most of the categories measured in the report, earning particularly high markets for having a property and casualty insurance market that is not politicized and for having essentially no residual auto insurance market.
Wyoming is one of very few states that does not use insurance regulatory fees to patch other holes in its state budget. It also is notable for having essentially residual markets in home or auto insurance and no outstanding obligations from companies under regulatory supervision or runoff.
Ohio is another state that gets high market for having property and casualty insurance regulation that is both very transparent and not politicized. The state has a highly flexible use and file system with no notable restrictions on the use of credit or territory.
Illinois’ “no file” rate-making system is the most flexible in the nation, creating a nearly free market in insurance rating and underwriting. It also helps produce a state with no notable residual markets in either home or auto insurance.
Despite being a small state, Vermont has the second highest number of domiciled insurance companies in the nation, behind only New York. It nonetheless does a good job of keeping up with its responsibilities to subject its domestic insurers to financial exams. Vermont is also notable for having among the least concentrated home and auto insurance markets in the nation, a very low tax and fee burden, and a very flexible use and file system with no notable restrictions on the use of credit or territory.
With its elected insurance commissioner post that has often served as a jumping off point for gubernatorial contenders, California is the most politicized insurance environment in the country. It also is notable for its extensive restrictions on rating factors, including the use of both credit and territory, and its desk drawer rules. The state also has a heavy burden of obligations from insurers under regulatory supervision.
Texas is notable for a “file and use” system that is so burdensome it functions essentially as a prior approval system. It also has been cited for employing desk drawer rules and its residual wind pool, the Texas Windstorm Insurance Association, is among the largest in the country.
Despite reforms to its auto insurance regulatory system, Massachusetts continues to have a highly concentrated auto insurance market and the second most significant residual auto insurance market after only North Carolina. It still restricts the use of credit in insurance underwriting and also has a significant residual market for homeowners insurance and restrictions. But most notably, the state collects more than $120 million in insurance fees and assessments, but spends only about 10 percent of that total on insurance regulation.
49. New York
New York has a strict prior approval rate-making system and it is known for employing “desk drawer rules” in insurance regulation. It also has a highly concentrated auto insurance market, a relatively high burden of outstanding obligations from companies under regulatory supervision and it raises several times more in insurance fees and assessments than it actually spends on insurance regulation.
Florida is home to the largest residual homeowners insurer in the country, Citizens Property Insurance Corp., as well as a state-run reinsurer, the Florida Hurricane Catastrophe Fund. Because Citizens’ rates effectively act as a cap on what private insurers can charge, it has the most restrictive rate-making environment in the country. It also has a highly politicized insurance environment, an elected chief financial officer and restrictions on the use of territory in underwriting.