How Does US Insurance Regulation Work?
The US property- and casualty-insurance regulation system claims to perform two main functions. The first is to ensure insurers hold enough capital to remain solvent. All developed countries regulate solvency of their insurance companies in one way or another. Smart government solvency regulation probably reduces the risk of individual companies going bankrupt. Stupid government solvency regulation replaces this risk with the systemic risk of the whole market going bust. (It is often hard to tell smart from stupid before it is too late.) The second function of US insurance regulation is to make insurance “affordable.” This means price control. There are differences between states, but in most of the country, insurers need to have their rates authorized if they want to write insurance using them. The main argument used to justify this type of regulation is that insurance needs to be affordable because it is a “necessity.” This is a bad argument, considering that gasoline and bread are a
