For the fifth straight year, Vermont had the best insurance regulatory environment in the United States, according to the R Street Institute’s recently released Insurance Regulation Report Card, an annual examination of which states best regulate the business of insurance.
Low politicization, ahead on financial exams, competitive auto market, competitive homeowners market, small residual markets, and broad underwriting freedom were listed as strengths on Vermont’s “A+” report card. Weaknesses included a large regulatory surplus, large tax and fee burden, and excess auto insurance profits.
Louisiana had the worst score in the country, edging out second-to-worst New York. Louisiana’s “F” report card listed no special strengths and a laundry list of weaknesses: Politicized market, large regulatory surplus, large tax and fee burden, concentrated auto market, very high auto loss ratio, excess homeowners profits, large homeowners residual market.
The biggest improvements were seen in Connecticut (from a C+ to a B), Delaware (from an F to a C) and New Hampshire (from a B- to a B+). The biggest declines were seen in South Carolina and Ohio (both from a B to a C).
In the 2018 report, R Street Senior Fellow and Director of Finance, Insurance and Trade Policy R.J. Lehmann addresses three fundamental questions: 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 and foster competitive, private insurance markets?
“In 2018, we saw progress toward more competitive insurance markets,” Lehmann said. “Residual property insurance mechanisms continued to shrink. Several states, notably Missouri, moved to loosen systems for filing rates and forms in the commercial insurance space. On the other side of the ledger, Illinois—long among the most free-market insurance environments in the nation—introduced stringent controls on its workers’ compensation market after overturning Gov. Bruce Rauner’s veto.”
The insurance market is both the largest and most significant portion of the financial services industry to be regulated almost entirely at the state level. While state banking and securities regulators largely have been pre-empted by federal law, Congress reserved to the states the duty to oversee the “business of insurance” as part of 1945’s McCarran-Ferguson Act.
The 2018 Report includes a review of the past year in insurance regulation at both the federal and state levels. Variables in the state rankings are weighted to provide balance between considering the rules a state adopts and the results it demonstrates, between the effectiveness regulators demonstrate in their core duties and the efficiency a state shows in making use of its resources.
Top 10 States by Total Score
- Vermont: 84.1, A+
- Kentucky: 78.3, A
- Arizona: 78.1, A
- Nevada: 77.7, A
- Indiana: 75.3, A-
- Idaho: 74.8, A-
- Virginia: 74.3, A-
- Wisconsin: 74.1, A-
- Utah: 74.0, A-
- Maine: 73.6, A-
R Street is a non-profit public policy research organization that supports free markets; limited, effective government; and responsible environmental stewardship. It has headquarters in Washington, D.C. and seven regional offices across the country. Its website is www.rstreet.org.