North Carolina went from bad to worse in R Street's annual rankings of state insurance regulation.
Coming in at No. 49 last year in the R Street Institute's Insurance Regulation Report Card, the Tar Heel state dropped to No. 50 and received an "F" grade for the second year in a row.
One negative trend in North Carolina is the growth of residual markets, both in Home and Auto. (A residual market acts as a coverage source of last resort for those who have been rejected by voluntary market insurers.) Lawmakers in Texas also passed legislation that would allow their residual property insurance markets to grow, which contributed to the state's decresed ranking from No. 28 in 2014 to No. 47 this year.
The insurance market is both the largest and most significant portion of the financial services industry to be regulated almost entirely at the state level," the report's author, R.J. Lehmann, who serves as R Street's co-founder, writes.
However, some good news: States that had allowed excess risk to build up on the backs of taxpayers, namely Florida and Louisiana, have made progress shrinking the size of their residual property insurance markets, Lehmann says.
In addition, for the first time in years, Michigan Auto insurers were able to collect more premium than what they had paid out in claims. This is notable because of the state's "no fault" system that requires all Auto insurers to pay uncapped lifetime medical benefits.
R Street, a conservative free market think tank based in Washington, D.C., aims to answer three questions for each state in its research:
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- How free are consumers to choose the insurance products they want?
- How free are insurers to provide the insurance products consumers want?
- How effectively are states discharging their duties to monitor insurer solvency, police fraud and consumer abuse and foster competitive, private insurance markets?
This year's report adjusted the weightings of some categories and incorporated new data, including the use of capitalization ratios to gauge the solvency of property and casualty markets. The report card ranked each state in 10 categories: politicization, solvency regulation, consumer protection, anti-fraud resources, fiscal efficiency, the Auto insurance market, the Homeowners' insurance market, the Workers' Comp market, rate regulation and underwriting freedom.
Details on how each state ranked per category, as well as notable state-by-state developments, can be found in the full report.
On the following pages is the report cards for all 50 states, ranked by letter grade:
North Carolina is the only state that allows rate bureaus to play a central role in personal lines markets, and its residual Home and Auto markets have grown. (Photo: Shutterstock)
50. North Carolina
Grade: F.
Total score: 45.6.
2014 score: 44.9.
Strengths: Workers' Comp market.
Weaknesses: Politicization, Auto insurance market, excessive rate regulation, underwriting restrictions.
Next page: States that received a "D" grade.
In 2015, a 12-year dispute between State Farm Lloyds and the Texas Department of Insurance over Homeowners' insurance rates was finally settled, and the company agreed to refund $352.5 million in premiums collected between September 2003 and July 2008. The battle stemmed from the state's 2003 overhaul of property insuranace regulations, which permitted companies to begin using rates without prior approval (Photo: Shutterstock).
49. Louisiana
Grade: D.
Total score: 51.
2014 score: 50.8.
Strengths: Anti-fraud resources.
Weaknesses: Politicization.
48. New York
Grade: D.
Total score: 51.2.
2014 score: 48.4.
Strengths: Anti-fraud resources.
Weaknesses: Solvency regulation, consumer protection, fiscal efficiency, excessive rate regulation, underwriting restrictions.
47. Texas
Grade: D.
Total score: 51.8.
2014 score: 61.3.
Strengths: Auto insurance market competitiveness.
Weaknesses: Solvency regulation.
46. Florida
Grade: D.
Total score: 52.4.
2014 score: 52.3.
Strengths: Fiscal efficiency, Workers' Comp market competitiveness.
Weaknesses: Politicization, solvency regulation, Homeowners' insurance market, excessive rate regulation, underwriting restrictions.
45. California
Grade: D.
Total score: 52.5.
2014 score: 44.2.
Strengths: Anti-fraud resources, Auto insurance market competitiveness.
Weaknesses: Politicization, solvency regulation, excessive rate regulation, underwriting restrictions.
44. Hawaii
Grade: D.
Total score: 53.4.
2014 score: 48.
Strengths: Anti-fraud resources.
Weaknesses: Homeowners' insurance market, excessive rate regulation, underwriting restrictions.
43. Montana
Grade: D.
Total score: 54.8.
2014 score: 46.7.
Strengths: Anti-fraud resources.
Weaknesses: Politicization, fiscal efficiency.
42. Mississippi
Grade: D+.
Total score: 57.1.
2014 score: 51.9.
Strengths: Workers' Comp market competitiveness.
Weaknesses: Politicization, excessive rate regulation, underwriting restrictions.
Next page: States that received a "C" grade.
In Oklahoma, an elected insurnace commissioner promised to crack down on insurers who deny man-made earthquake claims in cases where the underwriters say the claims occured because of deep-well injections. (Photo: Shutterstock)
41. Massachusetts
Grade: C.
Total score: 58.4.
2014 score: 49.1.
Strengths: Low politicization.
Weaknesses: Solvency regulation, fiscal efficiency.
40. Georgia
Grade: C.
Total score: 58.5.
2014 score: 57.2.
Strengths: Workers' Comp market competitiveness.
Weaknesses: Politicization.
39. Washington
Grade: C.
Total score: 58.9.
2014 score: 51.3.
Strengths: Auto insurance market competitiveness.
Weaknesses: Politicization, Workers' Comp market, excessive rate regulation, underwriting restrictions.
38. Oklahoma
Grade: C.
Total score: 59.8.
2014 score: 55.3.
Strengths: Underwriting freedom.
Weaknesses: Politicization.
37. Michigan
Grade: C.
Total score: 60.2.
2014 score: 50.5.
Strengths: Low politicization, fiscal efficiency.
Weaknesses: Anti-fraud resources, Auto insurance market.
36. Pennsylvania
Grade: C.
Total score: 60.4.
2014 score: 62.9.
Strengths: Consumer protection.
Weaknesses: Solvency regulation, consumer protection, excessive rate regulation, underwriting restrictions.
35. West Virginia
Grade: C.
Total score: 61.1.
2014 score: 56.8.
Strengths: Low politicization, anti-fraud resources.
Weaknesses: Fiscal efficiency, excessive rate regulation, underwriting restrictions.
34. Delaware
Grade: C.
Total score: 63.4.
2014 score: 54.5.
Strengths: Consumer protection.
Weaknesses: Politicization.
33. North Dakota
Grade: C.
Total score: 64.7.
2014 score: 59.1.
Strengths: Consumer protection, Auto insurance market competitiveness.
Weaknesses: Politicization, Workers' Comp market competitiveness.
32. Alaska
Grade: C.
Total score: 65.6.
2014 score: 59.8.
Strengths: Low politicization, anti-fraud resources.
Weaknesses: Homeowners' insurance market.
31. Alabama
Grade: C.
Total score: 65.8.
2014 score: 60.4.
Strengths: Low politicization, Workers' Comp market competitiveness.
Weaknesses: Excessive rate regulation, underwriting restrictions.
30. Rhode Island
Grade: C+.
Total score: 67.1.
2014 score: 63.9.
Strengths: Consumer protection.
Weaknesses: Excessive rate regulation.
29. Kansas
Grade: C+.
Total score: 67.2.
2014 score: 65.2.
Strengths: Fiscal efficiency.
Weaknesses: Politicization.
27. (tie) Minnesota
Grade: C+.
Total score: 67.4.
2014 score: 66.7.
Strengths: Low politicization.
Weaknesses: Consumer protection.
27. (tie) Indiana.
Grade: C+.
Total score: 67.4.
2014 score: 66.7.
Strengths: Workers' comp market competitiveness.
Weaknesses: Solvency regulation.
Next page: States that received a "B" grade.
Illinois ranked No. 3 in 2014, but dropped to No. 19 after the state came close to adopting a prior-approval system for Workers' Compensation insurance. (Photo: Shutterstock)
25. (tie) Connecticut
Grade: B.
Total score: 69.1.
2014 score: 61.4.
Strengths: Auto insurance market competitiveness.
Weaknesses: Excessive rate regulation, underwriting restrictions.
25. (tie) Arkansas
Grade: B.
Total score: 69.1.
2014 score: 58.6.
Strengths: Low politicization, anti-fraud resources.
Weaknesses: Fiscal efficiency.
24. New Mexico
Grade: B.
Total score: 69.4.
2014 score: 64.
Strengths: Low politicization, anti-fraud resources.
Weaknesses: Consumer protection, fiscal efficiency.
23. Ohio
Grade: B.
Total score: 69.7.
2014 score: 69.7.
Strengths: Free-market rates, underwriting freedom.
Weaknesses: Workers' Comp market.
22. New Jersey
Grade: B.
Total score: 71.3.
2014 score: 67.4.
Strengths: Low politicization.
Weaknesses: Solvency regulation.
21. Maine
Grade: B.
Total score: 71.4.
2014 score: 70.8.
Strengths: Auto insurance market competitiveness.
Weaknesses: None.
19. (tie) Maryland
Grade: B.
Total score: 72.1.
2014 score: 57.9.
Strengths: Low politicization.
Weaknesses: None.
19. (tie) Illinois
Grade: B.
Total score: 72.1.
2014 score: 72.5.
Strengths: Fiscal efficiency, Workers' Comp market competitiveness, free-market rates, underwriting freedom.
Weaknesses: Solvency regulation.
18. New Hampshire
Grade: B.
Total score: 74.5.
2014 score: 62.
Strengths: Low politicization, anti-fraud resources, Homeowners' insurance market competitiveness.
Weaknesses: Solvency regulation.
17. Idaho
Grade: B.
Total score: 75.
2014 score: 67.4.
Strengths: Low politicization, consumer protection, anti-fraud resources.
Weaknesses: Fiscal efficiency.
16. Wisconsin
Grade: B.
Total score: 75.4.
2014 score: 66.3.
Strengths: Low politicization, Workers' Comp market competitiveness.
Weaknesses: Consumer protection.
15. Missouri
Grade: B.
Total score: 75.8.
2014 score: 64.5.
Strengths: Low politicization, free-market rates, underwriting freedom.
Weaknesses: None.
14. Colorado
Grade: B.
Total score: 76.5.
2014 score: 66.
Strengths: Low politicization, fiscal efficiency.
Weaknesses: None.
13. Arizona
Grade: B.
Total score: 76.7.
2014 score: 64.7.
Strengths: Low politicization.
Weaknesses: Solvency regulation.
12. Oregon
Grade: B.
Total score: 76.9.
2014 score: 65.1.
Strengths: Low politicization, solvency regulation, fiscal efficiency.
Weaknesses: Workers' Comp market.
10. (tie) Nevada
Grade: B.
Total score: 77.1.
2014 score: 66.
Strengths: Low politicization, solvency regulation.
Weaknesses: Excessive rate regulation.
10. (tie) South Dakota
Grade: B+.
Total score: 77.1.
2014 score: 60.9.
Strengths: Low politicization, anti-fraud resources, Workers' Comp market competitiveness.
Weaknesses: Fiscal efficiency.
9. Wyoming
Grade: B+.
Total score: 77.2.
2014 score: 65.3.
Strengths: Low politicization, solvency regulation, free-market rates, underwriting freedom.
Weaknesses: Workers' Comp market.
Next page: States that received an "A" grade.
Although it has a no-fault system for Auto insurance, Utah jumped four spots to a No. 2 ranking in 2015. (Photo: Shutterstock)
8. South Carolina
Grade: A-.
Total score: 77.5.
2014 score: 59.6.
Strengths: Low politicization, Workers' Comp market competitiveness.
Weaknesses: None.
7. Tennessee
Grade: A-.
Total score: 77.7.
2014 score: 64.4.
Strengths: Low politicization, solvency regulation, Workers' Comp market competitiveness.
Weaknesses: None.
6. Nebraska
Grade: A-.
Total score: 77.8.
2014 score: 66.4.
Strengths: Low politicization, anti-fraud resources, fiscal efficiency, Workers' Comp market competitiveness.
Weaknesses: None.
5. Kentucky
Grade: A.
Total score: 78.3.
2014 score: 69.5.
Strengths: Low politicization, solvency regulation.
Weaknesses: None.
4. Virginia
Grade: A.
Total score: 78.6.
2014 score: 73.9.
Strengths: Low politicization, Workers' Comp market competitiveness.
Weaknesses: None.
3. Iowa
Grade: A.
Total score: 79.8.
2014 score: 71.9.
Strengths: Low politicization, fiscal efficiency, Workers' Comp market competitiveness.
Weaknesses: None.
2. Utah
Grade: A.
Total score: 81.
2014 score: 69.9.
Strengths: Low politicization, fiscal efficiency, Auto insurance market competitiveness.
Weaknesses: None.
1. Vermont:
Grade: A.
Total score: 84.3.
2014 score: 76.9.
Strengths: Low politicization, anti-fraud resources, Homeowners' insurance market competitiveness, free-market rates.
Weaknesses: None.
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