Anti-rebating laws and the Utah experience
Most free-market proponents recognize there can be a productive role for sensible regulation, but the bar is relatively high. First, one must identify some clear and compelling consumer harm that must be addressed. Then, one must identify potential corrective measures that do not inflict even more damage than the harm they are intended to fix. Finally, one must be mindful of potential unintended consequences, such as how the proposed regulatory apparatus could be twisted should the regulators become captured by the regulated.
Markets can and do function despite rules that fail to meet any of those tests. Bad and unnecessary regulations can persist for decades, calcifying into background structures that quietly add costs, diminish competition and stifle innovation in ways few tend to notice. Few notice, that is, until some enterprising firm comes to market with a new business model that fails to fit the old rules or an equally enterprising regulator finds a novel interpretation that threatens to make those old rules even worse.
In Utah’s insurance market, we are currently seeing a confluence of both of those things simultaneously.
Anti-rebating laws – relics of the 19th century that long have saddled insurance markets with superfluous and anti-competitive regulations – are bumping up against the business models of some modern insurance producers who have found new ways to serve their customers. Moreover, Utah’s anti-rebating law is now being applied in an unfair, anti-consumer and unjustified manner that threatens to undermine those same innovative products and service
Repealing all of the nation’s anti-rebating laws is likely too radical a change to expect to achieve in the short term. Even just simply repealing Utah’s statute might be a step beyond political feasibility. But there are realistic and targeted amendments that can be made to rein in runaway regulations and, in this case, ensure that Utah’s insurance marketplace remains among the most sensibly regulated in the nation.