Each year, the public policy research organization issues its Insurance Regulation Report Card
The insurance market is one of the largest and significant financial service industry sectors that is still solely regulated at the state level. The Insurance Regulation Report Card, published by the non-profit, non-partisan public policy research organization R Street Institute, is aimed at testing “…which state regulatory systems best embody the principles of limited, effective and efficient government.” The organization emphasizes that the report is not intended as a referendum on a specific regulator but rather “… our best attempt at an objective evaluation of the regulatory environments in each of the 50
To achieve that goal, R Street asks the following three questions in analyzing a state’s regulation of its insurance industry:
- How free are consumers to choose the insurance products they want?
- How free are insurers to provide the insurance products consumers want?
- How effectively are states discharging their duties to monitor insurer solvency, police fraud and consumer abuse and foster competitive, private insurance markets?
How Massachusetts fared in this year’s report
While our neighbor to the North, Vermont, continued to receive the top marks in the country for its insurance regulation, Massachusetts actually received a worse score in 2014 than it did in 2013. In 2013, the Commonwealth received a “C-” while this year it moved down to a solid “D.”
To figure out why, we queried Senior fellow, editor-in-chief and co-founder of R Street R.J. Lehmann about why Massachusetts got the marks it did. His response:
Massachusetts continues to make steady progress in implementing managed competition in its auto insurance market. The residual auto market is now just a third the size it once was. There’s been much less progress on the homeowners insurance side, where the Massachusetts Property Insurance Underwriting Association remains tied for the second largest in the country. Most states with large residual markets are in hurricane-prone areas like Florida, Texas, North Carolina and Louisiana. Massachusetts is the only one in the relatively placid Northeast that absorbs a significant portion of the overall market. Moreover, the Legislature has voted to expand the pool to write liability risks, which is not a good sign going forward.
Massachusetts also lays an unusually heavy burden on insurance companies doing business in the state. It collects more than ten times as much in regulatory fees and assessments from insurers and insurance agents as it spends on the regulation of insurance. This effectively serves as a hidden tax on the business of insurance, and it’s one that gets passed on in the costs of coverage paid by consumers.
After the in-depth answer he gave us on the low marks Massachusetts got, we decided to ask him what advice R Street would give to the next Commissioner of Insurance.
Our advice to the commissioner, and to lawmakers in the commonwealth, would be to continue moving forward with liberalizing the underwriting and rate-setting rules governing the home and auto insurance markets and to explore ways to shrink the MPIUA. In particular, given current market dynamics, the MPIUA might want to look into purchasing more private reinsurance and expanding its issuance of cat bonds — both of which are currently attractively priced — to better protect taxpayers in the event of a major catastrophe. Massachusetts also has a long way to go to adopt some of the regulatory modernization efforts that have proven successful in other states, like expanding the ability of consumers to transact insurance business online.
The Top 10 best states for insurance regulation according to R Street
The following ten states got the highest marks from R Street. This is the second year that Vermont sits at the head of the class receiving an overall A+.
- Vermont A+
- Virginia A
- Illinois A
- Iowa A
- Maine A-
- Utah A-
- Ohio A-
- Kentucky A-
- Idaho B+
- New Jersey B+
And the ten worst states for insurance regulation…
On the other end of the list, these ten states were given the lowest marks for their regulation of insurance. While Massachusetts is not the worst, it did, unfortunately, make this list.
- Florida D+
- Mississippi D+
- Washington D+
- Louisiana D
- Michigan D
- Massachusetts D
- New York D
- Hawaii D
- Montana D-
- North Carolina F
- California F