Policy Studies Insurance

2013 Insurance Regulation Report Card

Welcome to the R Street Institute’s 2013 Insurance Regulation Report Card, our annual examination of which states are doing the best job of regulating the business of insurance. R Street is dedicated to the mantra: “Free markets. Real solutions.” Toward that end, the approach we apply is to test which state regulatory systems best embody the principles of limited, effective and efficient government. In this context, that means states should regulate only those market activities where government is best-positioned to act; that they should do so competently and with measurable results; and that their activities should lay the minimum possible financial burden on policyholders, companies and ultimately, taxpayers.

There are three fundamental questions this report seeks to answer, the same questions we asked last year:

  1. How free are consumers to choose the insurance products they want?
  2. How free are insurers to provide the insurance products consumers want?
  3. How effectively are states discharging their duties to monitor insurer solvency, police fraud and foster competitive, private insurance markets?

For this year’s report, we have adjusted the weightings of some categories and incorporated new data sets into our analysis. In addition to examining market concentrations and residual markets in the private passenger automobile and homeowners insurance lines of business, we have added analysis of the workers’ compensation markets in each of the 50 states. While commercial property/casualty insurance tends to be less stringently regulated than personal lines, workers’ comp is similar to home and auto insurance in that many states exercise explicit rate controls and operate large residual markets. In fact, in four states – North Dakota, Ohio, Washington state and Wyoming – the state government serves as the monopoly source of workers’ comp coverage, completely displacing the private market. Given the role workers’ comp plays in the broader economy, and the potential for workers’ comp costs to impact what has been an excruciatingly slow jobs recovery, we felt it essential to more deeply examine how states are performing in this essential marketplace. We also have added analysis of loss ratio data from each of the 50 states in the three targeted lines of business.

Reviewing the data on insurance in 2013, we see 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.

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