Breaking Down State Barriers: How to Reduce Consumer Costs and Make Insurance Commissions Work More Efficiency

A week ago, I received a cancellation notice for a South Carolina residential insurance policy.  It surprised me.  I’d spoken with the agency two weeks earlier and they did not alert me to the overdue status.  I had also spoken about my auto with a Florida agency of the same insurance company a week ago and they did not mention the late payment problem in South Carolina.  It reminded me that a year ago, I had a renter’s policy with a Colorado agency of the same company.  So, I asked for my 4 policies to be consolidated into one agency.  I was told that each state has a rule that requires insurance on cars and dwellings to be issued by an insurance agent licensed in that state.

To accommodate my outrageous request, an agent would need multiple licenses – one in each state – prohibitively expensive and impractical.  As it is, any insurance company doing business in multiple states incurs the expense per state of separate trainers and agencies, unique policies, claims adjusters, financial portfolio managers, attorneys and regulatory relations personnel.  And each state’s insurance commission must be funded ultimately through fees on consumers or taxes on consumers.  Clearly, that level of upheaval is not warranted by my convenience.

I was left wondering what is so geographically frightening about consumer insurance policies?  Why won’t states trust each other with reciprocal rights?  Does Florida think Colorado is not competent to oversee auto insurance? Does South Carolina think Florida is not competent to oversee fire & casualty insurance on an owner occupied dwelling?  Does Colorado feel South Carolina is incompetent on rental insurance policies?  Let’s answer for them – “of course not.”  Coloradans drive in Florida using Colorado insurance and Floridians rent homes in South Carolina.  We don’t need an insurance “endorsement” to cross state lines.  There is no epidemic of out-of-staters being slaughtered by insurers.

Regulatory commissioners are typically political appointments for the usual non-economic reasons.  These state icebergs have appointee salaries as the visible tip, with a massive bureaucracy below the budget surface.  The more “rules” adopted, the more bureaucrats are needed to enforce conformance with the rules.  But then, harsh rules on businesses can burnish the reputation of populists.

Some states enacted quirky laws such as Florida’s “personal injury protection,” a mandatory auto insurance coverage for bodily injury reimbursement that has been milked by rear-end collision scammers.  Some states chose a “no-fault” approach, lest bad drivers suffer a drop in self-esteem.  But the functionality of auto insurance is always the same – if your health or vehicle is damaged, an insurance company pays (minus deductibles) for it to be restored to the extent possible.

If you strip away marketing frills (e.g. declining deductibles, roadside assistance), insurance policies are conceptually the same in each state.  And each state’s insurance commission has about the same job.  They assure that: insurer finances are adequate; policies conform to the law; policyholders and claimant treatments conform to the law; and that insurance employees know their obligations under the law.  These are important roles.  A commission that does it well in one state has 95% of what’s needed to do it in the adjacent states, and they are certainly smart enough to learn the other 5%.  Indeed, state insurance commissions have enough in common that they have a national association –where they share tactics on handling state issues and where they set a joint stance on federal matters.

If a few states were in budget difficulties and could shed the auto-reflex of appointing buddies to commissions, they could save a lot of taxpayer money by merging and then streamlining their insurance commissions.  That begs the question of why must we duplicate virtually identical state medical boards, state bars, state boards of nursing, state bank supervisors…and so on.

Alan Daley is a retired businessman who lives in Florida and who writes for The American Consumer Institute Center for Citizen Research

 

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