FIO, Modernization: Key To Cutting Costs
Former N.J. insurance commissioner sees chance to reduce regulatory burdens
BY HOLLY BAKKE
THOUSANDS OF PEOPLE—if not hun- dreds of thousands—received their au- tomobile-insurance bills today. Many
probably are wondering why their policies
have to cost so much—and are also likely
asking the same about their homeowners’
coverage. The answer is insurance could
cost less if the insurance-regulatory system
didn’t cost so much.
Insurance regulation in the U.S. is a
complex web of more than 50 separate,
state-based regulatory systems, each with
unique procedures, regulations and legal
definitions established by individual state
legislatures and insurance commissioners.
That means a company doing business in
40 states must comply with 40 different
sets of insurance regulations.
To fully appreciate the complexity,
consider the fact that insurers must get
approval from multiple state insurance
departments every time they change
prices (including lowering rates), bring a
new product to market or even make a
simple change to a policy form. Similarly,
insurance companies must have their
agents licensed and appointed in every
state where that agent sells insurance.
addition, that same company would be
required to pay an additional $7 million a
year to maintain their agents’ licenses.
For consumers, this lack of regulatory
uniformity and duplication of effort adds
to the cost of insurance, including those
policies consumers are required to purchase
by law, such as auto insurance.
These figures do not include the
significant administrative and personnel
costs required to track license-renewal
dates and to report to each state-insurance regulator about compliance
with continuing-education requirements.
Nor does this take into consideration the
burden on tax payers who also cover some
of the costs associated with the duplicative
My research suggests that a national
company selling personal-lines insurance
in all 51 insurance jurisdictions across
the country—with agents licensed and
appointed to sell insurance in at least two
states—spends in excess of $14 million
just to license and appoint its agents. In
Agent licensing is just one example of
the many state-regulatory costs that can
contribute to the cost of insurance. These
costs can be a barrier to the purchase of a
car or a home—or even the creation of a
business that has the potential to create jobs
and strengthen the American economy.
Holly Bakke is a former insurance commissioner at the New Jersey Department of
Insurance and currently works with Advocates
for Insurance Modernization, an organization
that promotes insurance reforms that benefit
consumers and encourage economic growth. She
may be reached at www.insuranceadvocates.org.
Association of Insurance
from all 50 states and
has worked diligently to coordinate
insurance regulation nationally. It has,
among other initiatives, tried to simplify
agent licensing, streamline approval of
select insurance products and develop
model laws governing all aspects of