Heartland Ideas

Free Market Solutions in Insurance

Property and casualty (P&C) insurance consists of personal lines (auto/private passenger and homeowners), commercial lines (farm, commercial auto, aviation, workers’ compensation, etc.), professional liability (directors and officers, errors and omissions), product liability, commercial multiple-line, nuclear, title, and surplus and excess lines insurance.

The U.S. leads the world in providing P&C insurance, with U.S. firms collecting some 43.4 percent of worldwide P&C premiums. Japan (at 10.3 percent) and Germany (8.8 percent) trail well behind. According to the U.S. Census Bureau, in 2004 there were approximately 19,800 property and casualty carriers in the U.S. employing 609,000 workers.

The current regulatory environment for property insurance is characterized by heavy-handed regulation at both the state and federal levels. Consumers suffer when regulations appropriate for a different era reduce competition, discourage innovation, and limit choices. We seek a world where insurers are free to sell the products they want to sell, consumers are free to buy them, and insurance serves a crucial risk-management and safety-promoting function that in many cases makes political intervention in individual affairs unnecessary.

To do that, we seek to advance three goals:

Risk-Based Rates

Insurance works best when risk determines rates. Forty-eight states, however, exert some degree of control over the rates P&C insurance companies can charge. Some states require prior approval of all rates, others grant insurers a greater degree of freedom in setting rates but still require insurers to inform state authorities of the rates (called “use-and-file” laws). We favor freedom to the maximum extent possible. We also believe insurers should be allowed to use geographic location, credit scores, and other relevant data correlated with risk to set rates.

Freedom to Innovate

Within broad guidelines intended to prevent fraud, insurers should be able to sell any product they want to and consumers should be free to purchase any product they want. Government interferes with the freedom to innovate when it sells products itself or bars the sale of products. Residual insurance markets should not be expanded beyond a bare minimum “market of last resort,” and any other government effort to provide insurance or reinsurance should be kept to a minimum. An optional federal charter would allow insurers to file and charge rates nationally without unreasonable restriction.


Longstanding federal, state, and local policies have encouraged development to occur in disaster-prone and often environmentally sensitive locations. Risk-based insurance rates offer the surest, most secure route to mitigating damage claims and producing overall a safer built environment. Government should stop subsidizing development in environmentally sensitive areas, remove government-built physical infrastructure (shipping channels in particular) that increase physical dangers, and restore coastal wetlands on publicly owned land.