Each of the past four years, The Heartland Institute has released a report that asks fundamental questions about the nation’s property and casualty insurance regulatory environment. In this 2011 report we again ask, as we have since 2007, two basic questions about property and casualty insurance products:
(1) How free are consumers to choose the property and casualty insurance products they want?
(2) How free are insurers to provide the property and casualty insurance products consumers say they want?
Reviewing the data on insurance in 2011, we see once again a modest, uneven, but nonetheless real trend towards more freedom for consumers and businesses in the homeowners’ and automobile insurance realms. Although state-level insurance bureaucracies make it difficult, sometimes impossible, for insurers to offer consumers the products they need, want, and deserve, burdensome regulation shows signs of easing.
As with any complex policy issue – particularly one where public policies differ in each of the 51 U.S. jurisdictions that regulate insurance – progress did not happen evenly, and positive trends came along with negative ones. Among the major events in 2010:
With significant bipartisan majorities, Florida’s legislature attempted to reduce the size and scope of the state’s extensive insurance market interventions. Reforms passed by the legislature would have created more rate freedom for insurers, provided new choices for consumers, and reduced the size of the state government’s insurance liabilities. Gov. Charlie Crist (I) vetoed the reforms, and Florida’s insurance environment continued on a potentially disastrous course.
Florida experienced a wave of insurer insolvencies resulting mostly from over-regulation of the market. Many insolvencies that the Florida Office of Insurance Regulation kept secret from consumers in the early months of the year ended up sending consumers and regulators scampering to other companies and the state’s residual market, the Florida Citizens Property Insurance Corporation.
Florida experienced a wave of insurer insolvencies resulting mostly from over-regulation of the market.¦ Even as residual market mechanisms around the country contracted on average (a positive development), residual mechanisms in Florida and Texas expanded significantly.
The widely accepted, pro-consumer practice of using credit scores to help determine insurance rates came under attack in Massachusetts, Michigan, and Washington State. Despite significant state legislative action, however, no state actually passed a law banning the practice. Near the end of the year, Massachusetts’ attorney general proposed to issue regulations that would have banned the use of credit scoring.
Sweeping, market-restricting automobile insurance reforms in Massachusetts and Michigan gained significant support but did not pass legislatures in either state. In Massachusetts, chief advocate for the new law, Martha Coakley, won reelection as Attorney General. In Michigan, Gov. Jennifer Granholm (D), the main supporter of the law, was term-limited, and Michigan’s governorship passed to the other party.
Federal-level reforms to regulation of financial services industries and health care avoided major effects on property and casualty insurance. Nonetheless, both the Patient Protection and Affordable Care Act and the Dodd-Frank financial reform bill included provisions affecting P&C insurance. Dodd-Frank establishes a first-ever federal-level office to deal with insurance issues and facilitates interstate sales of reinsurance and excess and surplus lines policies, and provisions of PPACA will affect automobile insurance.
The Deep Water Horizon oil spill raised questions about certain types of commercial coverage and resulted in record-high claims for BP’s insurers.
This study consists of four sections: This introduction, which outlines the purpose of this annual study; an explanation of the methodology we used; the state rankings; and a review of major events in insurance during 2010.
We continue to conduct this annual study for three reasons: because insurance is an important economic activity; because it is regulated almost entirely at the state level, resulting in significant variations of rules from state to state; and because we hope an objective look at state insurance regulation will encourage states to compete by creating freer insurance environments.