In contrast, Vermont fails to capture top spot for first time in 6 years
Unlike banking and securities which has all but been pre-empted by federal law, insurance remains one of the last remaining state-based regulated areas in the financial services industry to be overseen at the state level.
With that goal in mind, each year for the past nine years, the R Street Institute’s Annual Insurance Regulation Report Card, has tried to take an objective look at how each state’s Department of Insurance fares with respect to overseeing the “business of insurance”. Since 2012, R.J. Lehmann Director, Finance, Insurance & Trade; Resident Senior Fellow has written the report published by R Street, the non-profit, non-partisan public policy research organization. This year, however, is the last year the Report will be published by Mr. Lehmann, after he became the Editor In Chief at International Center for Law & Economics.
How the Insurance Regulation Report Card works
Now in its ninth edition, the 2020 Report Card works by giving each of the 50 states a “grade” based upon their results with respect to three fundamental questions:
- 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 and foster competitive, private insurance markets?
After first asking these three fundamental questions, each state’s insurance department is then assessed via seven different criteria and using the latest data available to determine how effective and efficient each state is in the discharge of their duties with respect to insurance. The seven criteria considered is as follows:
- Politicization (10% of the total score): meaning how politicized is the appointing or removal of a state’s insurance commissioner
- Fiscal Efficiency (15% of the total score): how competently and transparent is the
- Solvency Regulation (20% of the total score): how well states discharge their duty to financial exams, runoffs, and capitalization issues;
- Auto Insurance Market (10% of the total score): a look at the Market Concentration and Loss Ratios in each marketplace;
- Homeowners Insurance Market (10% of the total score): a look at the Market Concentration and Loss Ratios in each marketplace;
- Residual Markets (15% of the total score): a review of both the residual auto and homeowners marketplace in each state;
- Underwriting Freedom (20% of the total score): an examination of the processes states employ to review and regulate private auto, homeowners, workers’ compensation, medical liability, and general commercial lines.
Ultimately, as stated in the annual report, the underlying belief behind the Insurance Regulation Report Card is to determine which state regulatory systems best embody the principles of a limited and efficient government, embodying R Street’s mantra of “Free Markets. Real Solutions.”
As he has done for the past nine years, Mr. Lehmann emphasizes caution in interpreting the ‘Report Card’ or grades given as an indication against any given state.
Highlights from the 2020 report
For the first time in six years, Vermont has not topped the list as the best insurance regulatory environment in the U.S. The distinction this year is awarded to Arizona. It is only the second time in the nine years since the report started that Vermont has not finished with the highest marks. Unfortunately for Louisiana, it earned the worst score for the third year in a row, with Insurance Regulation Report Card giving it an F. According to the report it only ‘edged-out’ the second-to-worst New York.
“While Louisiana once again finished in last place in this assessment, the state Legislature and Gov. Edwards should be commended for seeking to tackle some of the cost drivers that long have made the Pelican State an unattractive place to do business,” said Mr. Lehmann in his remarks on this year’s grades. “With the House Insurance Committee set to consider changes next year that could make the insurance commissioner’s position appointed, rather than elected, one holds out hope that Louisiana could improve its score in the years to come.”
Continuing on he noted that “Perhaps the most surprising result in this year’s report was to see Vermont tumble from an A+ all the way down to a B. This breaks a six-year streak for Vermont as the best insurance regulatory environment in the United States and is only the second time in the nine years we have compiled this report that Vermont did not finish with the highest score.”
As for the states which saw the biggest improvements this past year, they included the following:
- South Dakota (from a C+ to an A);
- Alabama (from a C to a B-);
- Arizona (from an A- to an A+); and
- Colorado (from a D+ to a C).
As for the biggest declines in markets, they included Vermont (from an A+ to a B) and West Virginia (from a C to a D+).
How Massachusetts & its neighbors fared this year
Massachusetts has consistently ranked in the lower end of the spectrum since the inception of this report, receiving a “D” in 2011, a “C- in 2013” then dropped to a “D” in 2014, rallying back to a solid “C” in 2015.The improvement was short-lived, however, with the Commonwealth barely earning a passing grade (D-) in 2016, followed by an “F” in 2017. Since 2018, it has stayed mainly in the “D” range, but did improve this year from a “D” in 2019 to a “D+” in 2020.
Since more and more of our readers hail from all over the Commonwealth and New England, this year we look at each of the six states that make up New England:
| 2020 Rank (2019) | State | 2020 Grade | 2019 Grade | Score | Strengths | Weaknesses |
|---|---|---|---|---|---|---|
| 1 | Vermont | B | A+ | 66.4 | Ahead on financial exams, small residual markets. | High tax and fee burden, excess auto profits. |
| 22 (14) | New Hampshire | B | B+ | 63.2 | Competitive auto market, competitive homeowners market, small residual markets. | Large runoff obligations, thinly capitalized markets, excess auto profits, territorial restrictions. |
| 20 (18) | Maine | B | B | 64.4 | No regulatory surplus, competitive auto market, competitive homeowners market. | Excess auto profits, excess homeowners profits, large workers’ comp state fund. |
| 16 (19) | Connecticut | B | B | 65.8 | Low tax and fee burden, competitive auto market, competitive homeowners market, small residual markets. | Large regulatory surplus, territorial restrictions. |
| 33 (26) | Rhode Island | C | C+ | 58.6 | No regulatory surplus. | Behind on financial exams, large homeowners residual market. |
| 42 (47) | Massachusetts | D+ | D | 52.0 | Competitive homeowners market. | Large regulatory surplus, large auto residual market, large homeowners residual market, credit scoring restrictions. |
The Top 10 best and worst states for insurance regulation according to R Street
In addition to learning about the grades for Massachusetts as well as the rest of the New England states, Agency Checklists thought our readers would be interested in knowing what other states were ranked as the “top” students this year. Here are the ten states this year that R Street says are doing it right as well the ten who are not:
| Top 10 Best Grades | Top 10 Worst Grades |
| Arizona “A+” | West Virginia “D+” |
| Kentucky “A” | Massachusetts “D+” |
| Virginia “A” | North Dakota “D+” |
| Nevada “A” | California “D” |
| Indiana “A” | Arkansas “D” |
| South Dakota “A” | Mississippi “D” |
| Florida “A-” | Hawaii “D” |
| Illinois “A-” | North Carolina “D” |
| Utah “B+” | New York “F” |
| New Mexico “B+” | Louisiana “F” |
How to view the entire Report Card
For those interested in reviewing the R Street Insurance Regulation Report Card in its entirely, it can be accessed on the R Street website via this link.
