Kentucky and Arizona top the list with “A+”; California and Alaska score “F”

WASHINGTON (Dec. 12, 2022)—Today, the R Street Institute released the 10th edition of its Insurance Regulation Report Card. The report, authored by R Street Director of Finance, Insurance and Trade, Jerry Theodorou, analyzes and evaluates the effectiveness of state government regulation of property and casualty insurance and assigns a letter grade to all 50 states.

The grade for each state was calculated by adding the weighted results from seven categories. The highest grades were for Kentucky and Arizona, both of which received an A+. At the other end of the spectrum, California and Alaska both scored an F. Further analysis reveals that 20 states had a higher grade than they did in R Street’s 2020 edition of the Report Card, 23 maintained the same grade and seven had lower grades. This result is positive and means that insurance regulatory regimes have become more effective and efficient in the past two years.

Beyond the letter grade, the report explains the current landscape of U.S. insurance regulation; reviews recent, relevant, federal and state-based regulatory changes; and presents a detailed evaluation of the effectiveness of each state’s regulation of insurance in seven key categories. This allows readers to analyze and compare states to learn how and why they received the scores they did.

The report focuses on property and casualty insurance, particularly personal lines—private passenger automobile and homeowners insurance—because these are the lines of business that most directly affect people’s personal finances. These also tend to be the lines most often subject to legislative and regulatory interventions, such as price controls and the provision of insurance products by state-sponsored, -supported or -mandated institutions.

The grading methodology took into account the two most important functions of insurance regulators: protecting policyholders and supporting insurer solvency. These were also weighted most heavily in the grading methodology. Other criteria in the grading included the size of residual markets, fiscal efficiency, politicization and degree of competition in automobile and homeowners markets.

The category “weights” were based on their value in promoting a healthy, competitive market. For each category, the author used the most recent data available (year-end 2021 in most cases). Importantly, the author also used empirical data over subjective judgment wherever relevant and available. The two factors given the greatest emphasis in the weighted grade calculation—protect policyholders and support insurer solvency—are the conditions that the author believes most strongly influence states’ abilities to promote healthy, competitive markets.

You can download and read the full report here.

Insurance Regulation Report Card Grades:

  • Alabama—C-
  • Alaska—F
  • Arizona—A+
  • Arkansas—C+
  • California—F
  • Colorado—C
  • Connecticut—C
  • Delaware—C+
  • Florida—A
  • Georgia—C+
  • Hawaii—D
  • Idaho—B+
  • Illinois—A
  • Indiana—A
  • Iowa—B
  • Kansas—B
  • Kentucky—A+
  • Louisiana—D
  • Maine—B
  • Maryland—C
  • Massachusetts—C
  • Michigan—B-
  • Minnesota—C+
  • Mississippi—D
  • Missouri—B
  • Montana—C
  • Nebraska—B
  • Nevada—A
  • New Hampshire—B
  • New Jersey—B-
  • New Mexico—B+
  • New York—D
  • North Carolina—D
  • North Dakota—D
  • Ohio—C+
  • Oklahoma—B
  • Oregon—D
  • Pennsylvania—B+
  • Rhode Island—C+
  • South Carolina—C
  • South Dakota—A
  • Tennessee—B+
  • Texas—D
  • Utah—B+
  • Vermont—B
  • Virginia—A
  • Washington—B+
  • West Virginia—C
  • Wisconsin—B
  • Wyoming—B

Categories used to assign letter grades and their weight:

  • Solvency regulation (20 percent of score)
  • Underwriting freedom (20 percent of score)
  • Residual markets (15 percent of score)
  • Fiscal efficiency (15 percent of score)
  • Politicization (10 percent of score)
  • Auto insurance market competitiveness (10 percent of score)
  • Homeowners insurance market competitiveness (10 percent of score)

Florida—In an Insurance League of Its Own
Florida received an A grade, but for homeowners, it’s far from insurance paradise. This is because of off-the-charts levels of litigation and exposure to hurricanes. Neither of these are picked up in the criteria used for grading in this report card. They are issues created by factors beyond regulation; it’s not possible to control epidemics of trial lawyers and bad weather that plague the state.

On the plus side, Florida picks up a good number of points for rate regulation. Unlike California, insurers can get rate increases easily when needed. Capitalization looks strong because of the disproportionately heavy impact of Citizens Property Insurance, which is well capitalized and is the 600-pound gorilla in the Florida market. And the verbiage in the statute about requirements for insurance commissioners is impressive. Specifically, Florida law requires commissioners to have five years of private sector experience in the insurance industry and five years of experience as senior examiner or employee in a state or federal regulatory agency overseeing the insurance industry. Both of these five-year periods must have come immediately preceding the person’s selection as commissioner.

Insurance Commissioners, Powerful Policymakers
More than many other government officials, insurance commissioners have enormous power to influence state policy directly. They are responsible for regulation and supervision of insurance in all 50 states; 11 of those states elect their commissioners.

States with commissioners who focus on sound, nonpartisan regulation develop reputations for excellence, independence and reliability in the support and guidance they provide to policyholders and insurers operating in those states. However, when regulators are elected, they may end up more beholden to industry stakeholders who they align with politically. Such potential politicization was one of the seven categories used to assign grades in this report.

It is, then, important to note the results from this past Election Day. Four incumbent insurance commissioners were up for reelection. In California (grade F), Georgia (C+), Kansas (B) and Oklahoma (B), all commissioners secured reelection. These four states, as well as every other state that elects commissioners, were given zero points in the politicization category. While they may have scored higher in other categories, it is worth nothing that less partisanship can lead to higher government efficiency and economic growth.

The result in California may come as a surprise given the state’s overall letter grade. However, Insurance Commissioner Ricardo Lara, a Democrat, refused to approve a rate increase requested by insurers, making him popular among Californians who believe he is standing up to insurance companies. The reality, however, is that California is no stranger to natural disasters—wildfires, heavy rains and mudslides have plagued the state in recent years. Insurance rates must reflect the real risk of living so close to dangers such as these.

Previous Insurance Regulation Report Cards
2020 Insurance Regulation Report Card
2019 Insurance Regulation Report Card
2018 Insurance Regulation Report Card
2017 Insurance Regulation Report Card
2016 Insurance Regulation Report Card
2015 Insurance Regulation Report Card
2014 Insurance Regulation Report Card
2013 Insurance Regulation Report Card
2012 Insurance Regulation Report Card

About the R Street Institute
As a free-market, free-enterprise public policy organization, the R Street Institute favors competitive markets over markets with regulatory overreach and excessive or redundant regulation. To that end, our motto is “Free markets. Real solutions.”