The 9 worst states for insurance regulation: Report

The R Street Institute graded the states in 12 different areas of insurance regulation, revealing the best – and the worst

Insurance News

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North Carolina is the worst state in the nation for free market-promoting insurance regulation.

That’s the finding from the 2015 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.

Things appear to be heading in R Street’s preferred direction, with all but nine states receiving a passing grade of “C” or better in the report. Last year, 11 states failed to get a passing grade.

“On balance, we believe states have done an effective job of encouraging competition and, at least since the broad adoption of risk-based capital requirements, of ensuring solvency,” the report said.

However, several stand out as failing to meet the institute’s standards. North Carolina, among the worst states for the second year running, has failed to reform its auto insurance system despite several years of attempts, and is “the only one in the nation in which rates are negotiated by a collusive cartel,” according to R Street.

Other states that failed to make the grade include:

1. Mississippi (D+)
Strengths: Workers’ comp market competitiveness
Weaknesses: Politicization, excessive rate regulation, underwriting restrictions

2. Montana (D)
Strengths: Antifraud resources
Weaknesses: Politicization, fiscal efficiency

3. Hawaii (D)
Strengths: Antifraud resources
Weaknesses: Homeowners insurance market competitiveness, excessive rate regulation, underwriting restrictions

4. California (D)
Strengths: Antifraud resources, auto insurance market competitiveness
Weaknesses: Politicization, solvency regulation, excessive rate regulation, underwriting restrictions

5. Florida (D)
Strengths: Fiscal efficiency, workers’ comp market competitiveness
Weaknesses: Politicization, solvency regulation, homeowners insurance market competitiveness, excessive rate regulation, underwriting restrictions

6. Texas (D)
Strengths: Auto insurance market competitiveness
Weaknesses: Solvency regulation

7. New York (D)
Strengths: Antifraud resources
Weaknesses: Solvency regulation, consumer protection, fiscal efficiency, excessive rate regulation, underwriting restrictions

8. Louisiana (D)
Strengths: Antifraud resources
Weaknesses: Politicization

On the opposite end of the spectrum, the best states for insurance regulatory environments (those that received an ‘A’ grade) include: Vermont, Utah, Iowa, Virginia and Kentucky.

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.
 

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