California and North Carolina are the worst states in the nation for free market-promoting insurance regulation.
That’s the finding from the 2014 Insurance Regulation Report Card, issued by The R Street, a think tank promoting the values of “limited, effective and efficient government.”
In its annual review of insurance regulation across the country, the group assessed each state for proficiency in 12 areas, including ensuring carrier pricing flexibility; competitiveness in home, auto and workers’ comp markets; monitoring carrier solvency and efficiency. While it noted that some—like Florida—were making efforts to “scale back,” other states “appear to be moving in the wrong direction.”
“States should regulate only those market activities where government is best-positioned to act,” R Street senior fellow R. J. Lehmann wrote in the report. “They should do so competently and with measurable results…Their activities should lay the minimum possible financial burden on policyholders, companies and, ultimately, taxpayers.”
By those parameters, the group labeled the following 11 states the worst in the nation for insurance regulation.
1. California (F)
Strengths: Antifraud, fiscal efficiency, auto insurance market, workers’ comp market
Weaknesses: High politicization, rate regulation, desk drawer rules, rating restrictions, little regulatory modernization
2. North Carolina (F)
Strengths: Workers’ comp market, regulatory clarity
Weaknesses: Solvency regulation, consumer protection, auto insurance market, rate regulation, little regulatory modernization
3. Montana (D-)
Strengths: Antifraud, auto insurance market, home insurance market
Weaknesses: Solvency regulation, fiscal efficiency, workers’ comp market, little regulatory modernization
4. Hawaii (D)
Strengths: Solvency regulation, fiscal efficiency, workers’ comp market
Weaknesses: Home insurance market
5. New York (D)
Strengths: Low politicization, home insurance market, few rating restrictions
Weaknesses: Fiscal efficiency, desk drawer rules, little regulatory modernization
6. Massachusetts (D)
Strengths: Low politicization, home insurance market, workers’ comp market
Weaknesses: Fiscal efficiency, desk drawer rules, little regulatory modernization
7. Michigan (D)
Strengths: Fiscal efficiency, home insurance market, workers’ comp market
Weaknesses: Fraud, auto insurance market, little regulatory modernization
8. Louisiana (D)
Strengths: Regulatory clarity, workers’ comp market, few rating restrictions
Weaknesses: Politicization, fiscal efficiency
9. Washington (D+)
Strengths: Auto insurance market, home insurance market
Weaknesses: Workers’ comp market, little regulatory modernization
10. Mississippi (D)
Strengths: Solvency regulation, auto insurance market, workers’ comp market, few rating restrictions
Weaknesses: Desk drawer rules, little regulatory modernization
11. Florida (D+)
On the other end of the spectrum, states like Vermont (A+), Virginia (A) and Iowa (A) were honored for achievement in the 12 points of assessment. Maine, Utah, Ohio and Kentucky also fared well, with grades of A-.
Overall, R Street applauded state-based regulation on its job of encouraging competition and carrier solvency. The report noted, however, that some state-by-state regulations lead to inefficiencies in the market.
