For the fifth straight year, the R Street Institute, a public policy research organization, has compiled its Insurance Regulation Report Card, the annual examination of which states best regulate the business of insurance.
In the 2018 report, author R.J. Lehmann, R Street senior fellow and director of finance, insurance and trade policy, addresses three fundamental questions:
- 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 and foster competitive, private insurance markets?
According to Lehmann, “states have done an effective job of encouraging competition and, at least since the broad adoption of risk-based capital requirements in the 1990s, of ensuring solvency. In the vast majority of U.S. states, markets for the common ‘personal lines’ of home and auto insurance meet common statutory definitions for competitiveness. Insolvencies are relatively rare and, through the runoff process and guaranty fund protections enacted in nearly every state, generally quite manageable.”
The report’s author goes on to say there are ways in which the state-by-state regulations lead to inefficiencies, noting certain state policies have the effect of discouraging capital formation, stifling competition and concentrating risk.
How the states rank
For the fifth straight year, Vermont had the best insurance regulatory environment in the United States, according to R Street. Louisiana had the worst score in the country, edging out second-to-worst New York.
The biggest improvements were seen in Connecticut (from a C+ to a B), Delaware (from an F to a C) and New Hampshire (from a B- to a B+). The biggest declines were seen in South Carolina and Ohio (both from a B to a C).
Top 10 scoring states (total score in parentheses)
2. Kentucky (78.3)
3. Arizona (78.1)
4. Nevada (77.7)
5. Indiana (75.3)
6. Idaho (74.8)
7. Virginia (74.3)
8. Wisconsin (74.1)
9. Utah (74.0)
10. Maine (73.6)
Bottom 10 scoring states
50. Louisiana (45.8)
49. New York (49.3)
48. North Carolina (50.0)
47. California (51.6)
46. Arkansas (51.6)
45. Massachusetts (52.9)
44. Mississippi (53.5)
43. North Dakota (53.5)
42. Hawaii (54.3)
41. Montana (55.)
40. South Carolina (58.6)
Competitive insurance markets
“In 2018, we saw progress toward more competitive insurance markets,” Lehmann notes. “Residual property insurance mechanisms continued to shrink. Several states, notably Missouri, moved to loosen systems for filing rates and forms in the commercial insurance space. On the other side of the ledger, Illinois — long among the most free-market insurance environments in the nation — introduced stringent controls on its workers’ compensation market after overturning Gov. Bruce Rauner’s veto.”
About R Street
R Street Institute describes itself as a nonprofit, nonpartisan, public policy research organization whose mission is to engage in policy research and outreach to promote free markets and limited, effective government. R Street is dedicated to the motto: “Free markets. Real solutions.”
As one of their core operating principles, the R Street Institute is dedicated to building broad coalitions to expand bipartisan support for market-oriented policy proposals. Learn more about R Street.