state regulation of insurance
The complexity and cost variations of insurance stems directly from state
regulation of the industry. Unlike the securities and banking industries, the
insurance industry does not have a strong federal oversight role. Instead,
through the 1945 McCarran-Ferguson Act, the domestic industry faces 55 sets
of overseers (the 50 states, the District of Columbia, Puerto Rico, the Virgin
Islands, Guam and American Samoa). With so many different sites of
regulation, and so many sources of local sales outlets for insurance policies,
it’s not surprising that insurance policies are hardly the standardized
commodities that you find when trading stocks or opening a bank account.
This is particularly true in property/casualty coverage and less so in life
insurance. Added to the maze of different products is the fact that state-
based regulation means that insurers may base their rates in each state on
their business profile in that state. Auto rates, for example, reflect accident
and theft trends in local territories. The upshot is that there is great pricing
variation along with lots of different types of policies. Lastly, insurers have
increasing freedom to price their policies for whatever the market will bear.
Even if an insurer has to file its rates in your state, you shouldn’t assume that
state regulators are poring over the rates to review their fairness.