Fragmentation Nation: Wyoming Is Best State for Carriers; California Worst
To help quantify carriers’ challenge, the Washington, D.C.-based think tank R Street Institute graded all 50 states on the regulatory flexibility of P&C markets. One of the key indicators is underwriting freedom, a metric that R Street calculates by considering the ease of getting new premium rates implemented, the ability to use credit scores as an underwriting variable, restrictions on the use of territory — the location of an insured property or where a vehicle is garaged — in underwriting and rate setting — and so-called desk drawer rules, which are unpublished directives regulators may use to block filings or delay approvals.
Regulatory minefields
California scored lowest in the nation, with a -6 score for underwriting freedom. The state received zero points for rate regulation and -2 points each for credit scoring, territory and desk drawer rules.
New York followed with a -5 score. The state’s reliance on desk drawer rules contributes to an unpredictable environment that can chill innovation, according to the think tank. Although R Street didn’t list every rule, the report cited their cumulative effect as a major impediment to underwriting freedom.
Hawaii and Maryland tied for third worst at -4. Both states ban credit-based scoring, which many carriers use to assess the likelihood of losses. But the report also noted that Hawaii lacks regulatory transparency and Maryland limits use of geographic data, like ZIP codes or census tracts, in rate filings, which limits insurer autonomy.
Gold-standard states
With an underwriting freedom score of 25, Wyoming was on the other end of the spectrum. The state permits open competition in every major line and doesn’t impose limits on credit scoring or territorial underwriting. There are also no desk drawer rules to frustrate innovation, making it a state where insurers can move swiftly, test novel ideas and pivot as market conditions change.
New Mexico is similarly frictionless in terms of regulation, with minimal use of restrictive tools and a laissez-faire attitude toward filings. The state scored high across every category, cementing its place as a top destination for P&C growth.
Utah, while slightly more regulated than Wyoming or New Mexico, is still a haven for insurers. The state operates under a use-and-file regime and supports a broad range of rating inputs, including credit scoring, making it attractive to new carriers and innovation-minded incumbents alike.
In agile jurisdictions like Wyoming or New Mexico, carriers can launch a new product line in a matter of weeks. But in restrictive states like California or Maryland, the same process could stretch into months or be halted altogether based on politics. That matters in an era where climate volatility, AI-driven pricing and shifting reinsurance dynamics demand nimble response.
As insurers chart their 2025 growth strategies, they’ll need to consider more than just loss cost trends and catastrophe exposure maps. Increasingly, the ability to act fast is becoming the new baseline for competitive advantage.