Insurance News

States Exert More Controls On Insurers, Consumers

Posted on: June 28, 2009

The role of government in the American insurance market increased in 2008, according to a 50-state study released by two conservative think tanks.

“For every free-market reform, a regulatory setback increased government intervention in many states,” concluded the report by the Washington-based Competitive Enterprise Institute and the Heartland Institute in Chicago.

Their study examined whether American consumers could buy the insurance products they want and whether companies could sell the products they wanted to, and concluded they cannot always do so.

“State regulation, whatever its merits, has not succeeded in providing a forum for an insurance market that works well for Americans,” the report said. CEI is a supporter of giving insurers the option of a federal charter.

The study assigned letter grades to the various states, with only four rating an “A” and nine rating a “B” grade.

In first place for a second year was Vermont. The report said it got that ranking because “it maintains competitive markets for all types of insurance, attracts new companies, and allows insurers to use territorial factors to determine rates.”

Vermont, which is the nation’s top domicile for captive insurers, was termed “a haven for home-grown insurance companies.”

The report commented that “every nationally recognized insurance company does business there, and these national providers compete vigorously for market share with a number of Vermont-focused companies.”

Five states, including New York, were given an “F,” with the lowest flunking grade going to Florida. “A free market for homeowners insurance does not exist in Florida. Instead, a state-run agency, the Florida Citizens Property Insurance Corporation, serves as the state’s largest property insurer. Florida’s rate regulatory system is one of price control,” the report said.

Currently, the report said, “Florida limits all insurance rates to Citizens’ rates plus 15 percent. The state’s burdensome prior-approval process and wholesale government interference with the rate-setting process has led most major insurers to withdraw or cut back policy-writing in the Florida market.”

The institutes said their study “reports the way things are, not the reasons they came into being. Differences in state insurance environments reflect geography, political personalities, means of insurance regulation, and citizens’ preferences for one type of regulation rather than another, among other factors.”

“States need to reform their own laws, and the nation as a whole needs to consider efforts that would allow regulators to compete with one another. Optional federal charters, broader proposals for national insurance regulation, and laws allowing insurers to operate under one state law while doing business in another deserve consideration,” the report advised.

© Copyright 2009 National Underwriter Property & Casualty. A Summit Business Media publication. All Rights Reserved.

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