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
states.”
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, once again received the top marks in 2015, Massachusetts actually improved this year as well. While in 2013, the Commonwealth received a “C-“, moving down to a “D” in 2014, this year we have moved to a solid “C.”
To find out what we are doing right, we once again queried Senior fellow, editor-in-chief and co-founder of R Street R.J. Lehmann about why Massachusetts got the marks it did.
Massachusetts improved its letter score in our annual Insurance Report Card — moving from a C last year to a D this year — and I would credit the improvement largely to the continuing effects of the state’s auto insurance reform legislation. As it has moved away from the strict monopoly rate model into “managed competition,” Massachusetts consumers are able to enjoy new and better insurance products. Moreover, the state’s assigned-risk “Automobile Insurance Plan,” while still one of the larger auto insurance residual markets in the country, is now only a fraction of the size of the Commonwealth Auto Reinsurers mechanism that it replaced.
However, it should be noted that Massachusetts remains in the bottom ten states and there are issues in its insurance regulatory market that still concern us. Massachusetts collected $147.3 million in fees and assessments from the insurance industry last year — which doesn’t count the fines and penalties companies pay or the premium taxes assessed on policies — yet it spent just $14.1 million on insurance regulation. It isn’t unusual for states to collect more in fees than they spend on regulation, as all but 12 states did. But the gap between those two figures, which we call the regulatory surplus, serves as a kind of hidden tax on insurance consumers. And Massachusetts’ was bigger than anyone else’s — more than three standard deviations larger than the mean.
Our report card does not seek to assess the performance of specific regulators, and it’s probably still too early to assess the job done by Daniel Judson since he was appointed to lead the Division of Insurance earlier this year. But we are encouraged by the Baker administration’s interest in reviewing and reforming onerous regulations. Massachusetts continues to have a very stringent system of rate regulation in insurance and we believing moving further in the direction of free markets would benefit consumers tremendously.
The Top 10 best states for insurance regulation according to R Street
The following ten states got the highest marks from R Street. Overall, the first five states tied with an “A”.
- Vermont “A”
- Utah “A”
- Iowa “A”
- Virginia “A”
- Kentucky “A”
- Nebraska “A-“
- Tennessee “A-“
- South Carolina “A-“
- Wyoming “B+”
- South Dakota “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.
- Georgia “C”
- Massachusetts “C”
- Mississippi “D+”
- Montana “D”
- Hawaii “D”
- California “D”
- Florida “D”
- Texas “D”
- New York “D”
- Louisiana “D”
- North Carolina “F”
View the R Street’s 2015 Insurance Regulation Report Card here.
