WASHINGTON (Dec. 18, 2013) — Virginia and Vermont had the best insurance regulatory environments in the United States this year, while New York had the worst, according to the R Street Institute’s newly released 2013 Insurance Regulation Report Card.

Authored by R Street Senior Fellow R.J. Lehmann, the report card evaluates each of the 50 states on 19 objective metrics to determine which best embody the principles of limited, effective and efficient government.

“As an organization committed to both free markets and real solutions, we believe states should regulate those market activities where government is best-positioned to act, and that they should do so effectively,” Lehmann said. “States that do well in our report are those that best monitor insurer solvency and police fraud, but leave it to competitive market forces to determine the rates and terms of insurance products. We also reward states that operate efficiently to lay the minimum possible financial burden on policyholders, companies and ultimately, taxpayers.”

Compared to the 2012 edition, this year’s report card adjusts the weightings of some categories and incorporates new data sets into the analysis. In addition to examining market concentrations and residual markets in the private passenger automobile and homeowners insurance lines of business, the report now includes analysis of the workers’ compensation markets in each of the 50 states. This year’s report also adds analysis of loss ratio data from each of the 50 states in the three targeted lines of business, deducting points for states that, over the last five years, have posted loss ratios that are either excessively high or excessively low.

Overall, the report finds continued modest trends toward greater consumer and business freedom in the personal lines and workers’ comp markets, as well as real efforts in some states to scale back, or otherwise place on more sound financial footing, residual insurance markets and state-run insurance entities. Notably, Florida Gov. Rick Scott signed legislation in May, based in part on R Street proposals, lowering the maximum coverage written by the state-run Citizens Property Insurance Corp., creating a clearinghouse to verify the eligibility of new Citizens policies and barring Citizens from insuring new coastal construction.

However, there were also some notable steps in the wrong direction. In Connecticut, which set off a trend of states moving toward more flexible rate-making when it adopted a “flex band” system in 2006, Gov. Dannel Malloy signed legislation in June that narrowed the band from 6 percent to just 3 percent.

Virginia and Vermont both earned an ‘A+’ for scoring a combined rating that was more than two standard deviations above the mean.  The best state, Virginia, scored 47 out of a maximum possible score of 110.

“Virginia scored solidly across the board with no glaring weaknesses and with particularly good marks as a strong regulator of solvency with a high degree of underwriting freedom, transparency and a lack of politicization,” Lehmann wrote.

Other states receiving an ‘A,’ with scores that were more than a standard deviation above the mean, include Illinois, South Carolina, Tennessee, Missouri and Minnesota.

Only one state, New York, received a failing grade, falling more than two standard deviations below the mean. New York scored a -50, compared to a minimum possible score of -230. Among the categories where New York underperformed were its large regulatory surplus, relatively concentrated auto insurance market, desk drawer rules and lack of underwriting freedom.

Other states that scored more than one standard deviation below the mean – enough to earn a ‘D’ in this year’s report card – include Hawaii, West Virginia, Florida, California, Texas, Washington, North Dakota and Montana.

The full report card can be found here:


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