Oklahoma's Insurance Rate System Linked to High Property Premiums

Oklahoma's property insurance market is notable for having some of the highest homeowner premiums in the United States, attributed in part to the state's adoption of a file-and-use system for rate setting. This regulatory model allows insurers to set rates without prior approval from regulators, contrasting with California's prior-approval system, which has effectively kept homeowner premiums low for decades. A 2019 study by the Consumer Federation of America highlights how California's model saved consumers $154 billion over two decades by vetting rate increases before implementation.

In Oklahoma, homeowners pay an average premium of $6,331 annually, which is the highest in the nation and represents 6.84% of household income. In contrast, California's average is $1,260 per year. Additionally, Oklahoma ranks low in controlling auto insurance rate increases, which have risen 106% from 1989 to 2015, resulting in a potential $1 billion in savings if rate control were more effective. Liability coverage has also increased significantly by 111% during the same period.

The regulatory differences between the two states illustrate the significant financial impact that insurer rate review mechanisms have on consumers. The prior-approval system, as seen in California, serves as a regulatory tool to scrutinize and often limit rate hikes, promoting affordability for policyholders. Conversely, file-and-use systems, like Oklahoma's, tend to allow market-driven increases without as stringent regulatory oversight, potentially leading to higher costs for consumers.

These findings have prompted discussions among Oklahoma lawmakers about possible reforms to the state's insurance regulatory framework. However, the state's insurance commissioner has not publicly commented on the issue. The ongoing debate reflects broader considerations about balancing insurer solvency, consumer protection, and market competitiveness within state insurance markets.

This case study between Oklahoma and California highlights critical lessons for policymakers, insurers, and consumer advocates regarding how insurance rate regulation can either mitigate or exacerbate the financial burdens on policyholders. It underscores the role of state-level regulatory approaches in shaping insurance affordability and market dynamics in the United States.