The Politics of Insurance Regulation

Even though insurance is the largest state-regulated industry in the United States, it has received almost no scholarly attention in the science literature. Until the publication of The Political Economy of Regulation: The Case of Insurance, only one science book examined the politics of public policies affecting insurance and that covered only the regulation of life insurance investments in a single state (Orren, 1974). The purpose of this essay is to outline a theory of insurance regulation and apply science theories of public policy to the politics of insurance regulation. The essay assumes that insurance regulation is similar to other forms of regulation, that it is inherently a process whereby actors seek to allocate the powers of the state for their own benefit. Accordingly, the goals of insurance regulation must be viewed as multiple and rather than just in terms of correcting market failures. Based on studies of other industries, elaborate theories of regulatory policy exist in the literature (Wilson, 1980; Meier, 1985; Noll and Owen, 1983; Reagan, 1987). Regulatory policy, in these theories, is viewed as resulting from the interaction of political within an environment that influences the abilities of these institutions to use their resources effectively. Four major institutions or actors (or sets of actors) have been identified: the regulatory agency (i.e., the insurance commission), the regulated industry (in this case the insurance industries), non-industry interests (primarily though not exclusively in this case consumer interest groups), and elites (legislators, chief executives, federal officials, et al.). Regulatory issues take place in an environment that varies in both complexity and salience. This environmental variance systematically advantages and disadvantages each of the actors depending on how salient or how complex the policy issue under consideration is. This essay will link each of the four major actors in insurance regulation to broader theories