Arizona, Idaho, Utah and Vermont offer the most open and competitive regulatory environments for property insurance, according to a forthcoming state-by-state survey conducted by the libertarian Competitive Enterprise Institute.

 

A copy of the report shows the think tank gave failing grades to six states, with the states of Florida, Massachusetts and Louisiana all receiving an F- for their proliferation of desk drawer rules, territorial restrictions, large residual markets, and other factors researchers cite as impediments to free markets.

 

Authored by CEI fellows Eli Lehrer and Michelle Minton, the report cites Vermont as having the most competitive regulatory environment in the nation, a spot the state also held in the institute's inaugural survey in 2008. The captive capital was cited for its ability to attract new companies and its choice to allow insurers to use broad territorial rating factors in determining rates.

 

"Vermont is a haven for home-grown insurance companies: Every nationally recognized insurance company does business there, and these national providers compete vigorously for market share with a number of Vermont-focused companies," Lehrer and Minton write.

 

At the other end of the spectrum, the report faults Florida's regulatory environment as the nation's worst, stating flatly that: "A free market for homeowners insurance does not exist in Florida."

 

"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," CEI noted, while also faulting both Florida and Louisiana for operating "full-fledged property insurance companies as state agencies."

 

Edward O'Brien, Louisiana's deputy insurance commissioner for property/casualty lines, conceded the state's loss ratio stability has been impacted in recent years, which he attributed to the exodus of carriers from the state following hurricanes Katrina and Rita in 2005.

 

"We're trying desperately and have been pretty successful in eliminating those," O'Brien said. "We have had for the last three years a rating seminar for companies to come in and talk to our people, and understand what we can approve and what we can't approve...We're trying our best with desk drawer rules, I can't tell you 100% that they're gone, but I can tell you that if I uncover them, they will be gone."

 

Edward Domansky, a spokesman for the Florida Office of Insurance Regulation, said Insurance Commissioner Kevin McCarty "recognizes that the Florida insurance market has unique challenges for both insurers and consumers."

 

"The state's geography alone makes Florida inherently more risky for property insurers and more costly for consumers," Domansky said.

 

He also called "categorically untrue" the report's assertion that private market rates must be no more than 15% more than those set by the state-controlled Citizens Property Insurance Corp.

 

"The policyholder has the option to go to Citizens if the rate is more than that, but neither rates nor price controls are set based on Citizens rates. The OIR reviews and approves or disapproves company rate filings; it does not set the rates," Domansky said.

 

Lehrer, however, stood by his assertion that the regulation and Citizens "subsidized" below-market rates served as a "de facto price control mechanism."

 

"The state-run company is a price control mechanism for all intents and purposes," he said.