Today, insurance regulation in the U.S. is made up of more than 50 different state-based insurance jurisdictions, each with its own regulations, procedures, and legal definitions of insurance. This complex regulatory web is comprised of more than 50,000 insurance laws, 12,000 insurance regulations, and 2,300 insurance bulletins across the country. In fact, it is estimated that the costs of administering this state-based system total $13 billion each year, costs that ultimately drive up insurance rates for consumers.
To fully appreciate the complexity of this system, consider that insurance agents doing business in multiple states must comply with numerous, often duplicative, licensing requirements that include various applications, fees, exams, and background checks.
Similarly, insurance companies seeking to bring new innovative products to market must comply with a litany of state-based regulations that require products to meet different coverage and exclusion standards, and even require unique product approval forms. This process can take years and even if successful, the approved products are likely to vary from state to state.
As a former state insurance commissioner, I know the importance of effective insurance regulations that protect consumers and promote fair competition. I also recognize that without an updated insurance regulatory structure the consumers in every state pay more.
This is true for families who must pay higher insurance premiums for life and homeowners insurance, and for drivers who are required to purchase auto insurance by law. It’s true for entrepreneurs starting a small business and business owners who view the rising cost of insurance as a barrier to hiring more workers. It’s also true for taxpayers who currently pay more than $1.5 billion a year to support a complex system of redundant insurance regulations.
As our elected leaders consider ways to jumpstart our economy, Congress can start by leading the effort to modernize the state-based insurance system and putting our money to better use.
Robert Wooley is the former Insurance Commissioner at the Louisiana Department of Insurance and currently works with Advocates for Insurance Modernization, an organization that promotes insurance reforms that benefit consumers and encourage economic growth.