There are hundreds and thousands of policyholders who receive their auto insurance bills on a daily basis and wonder if a time will come when their policies would cost less. In fact, many people might be asking the same question regarding their homeowners’ coverage or their life insurance premiums. The answer is plain and simple – insurance can cost less if the entire regulatory system costs less.
In the US, insurance regulation is a complex web of over 50 separate state-based insurance regulatory systems and each one has its own unique features such as regulations, procedures, legal definitions that are mandatory for each state and are governed by their respective state legislatures as well as their insurance commissioners. Hence, a company that does business in 40 different states will have to comply with 40 different set of rules and regulations pertaining to the state.
The whole thing is quite complex as far as the insurance companies are concerned. For instance, if the insurer has to change the pricing in the policy (includes lowering the rates as well) then they have to get approval from the various state insurance departments. It is the same when they have to launch a new product into the market, or even when they make a small change in the policy form. In the same manner, the insurance companies have to license and then appoint their agents in every state where the agent has to sell the policy.
However, for the consumers, duplication of effort and lack of regulatory uniformity often adds to the cost of the policy, inclusive of the coverage that is mandatory as per the law – such as auto insurance for instance.
Research as suggested that a national company that sells personal lines insurance in all the 51 jurisdictions across the nation where the agents are licensed and then appointed to sell policies in a minimum of two states, would be spending over $14 million. In addition to that, the same company will have to pay another $7 million each year in order to maintain the licenses of their agents.
However, these figures are not inclusive of the personnel costs or other administrative costs that are involved in tracking the license renewal dates and reporting the same to each insurance regulator regarding the compliance with the education requirements, all of which keeps varying from one state to another. This also does not take into consideration the burden it puts on the tax payers who also cover some of the costs.