Lawmakers, AG challenge insurance commissioner’s competitive market claims

In early October, the Oklahoma House and Senate mounted interim studies on skyrocketing homeowners insurance rates. Senate minority leader Julia Kirt, who organized the study in the upper chamber, said that more than a handful of insurance lobbyists had since approached her with nervous questions.

“I think there is unease that we’re exploring this,” Kirt said. “They’re watching.”

The lobbyists, Kirt said, wanted to know if there was a local or national group, either moneyed or nonprofit, pushing for reform. There wasn’t. Kirt’s efforts were driven by her constituents, who reached out to politicians and to the Oklahoma Insurance Department.

Kirt and Rep. Andy Fugate, D-Del City, who organized the House study, are each planning new law that can begin to address a statute that has been interpreted to mean the Oklahoma Insurance Department has no authority to challenge rates.

The same statute applies to auto insurance. Kirt and Fugate agreed that a top agenda item should be checking the ability of insurance companies to use credit ratings to determine auto insurance rates. A significant portion of those with poor credit have suffered from health crises or job losses, financial studies reveal — that is, events beyond their control. The result, Fugate said, is that an individual with poor credit and a perfect driving record can wind up paying more than an individual with several accidents but an 800 FICO score.

Kirt said she would like to see a profit cap on insurance companies. In addition, she said a Texas-style system of rate review, in which actuaries evaluate rate changes after they are put into use, would benefit Oklahoma consumers. Such reviews are prohibited in Oklahoma, but since 2021, actuaries have saved Texas consumers $131.7 million.

“I think we should be reviewing rates,” Kirt said.

Fugate said he would like to see legislation requiring the insurance department to make information available to consumers to help them make informed choices about insurance companies.

“Insurance is different from other products,” Fugate said. “You’re not buying something physical, something tangible. You are buying a promise that at some point in the future, the insurance company will be available to cover claims.”

People buy policies based on price and brand recognition, Fugate said. That’s a problem, because price and brand tell you nothing about how a company will perform when it matters.

By way of contrast, the sort of information that would be truly useful to consumers is not publicly available, Fugate said. How well does an insurance company satisfy claims? Do they deny claims entirely? Will you need an attorney to fight for what you’ve already paid for?

“This stuff ought to be made available through the insurance department directly,” Fugate said. “Just like we have report cards for schools, we should have a report card for insurance. That would enable consumers to make real choices.”

Buried beneath Fugate’s questions is a more fundamental flaw in Oklahoma insurance law: competition.

A Defiant Response

Consistently since Oklahoma Watch first challenged a claim that hail events explained Oklahoma’s out-of-whack homeowners rates, Mulready has said that the number of insurers alone demonstrates that Oklahoma enjoys a competitive market.

Attorney General Gentner Drummond didn’t buy it. On Aug. 12, he chastised Mulready’s stewardship of homeowners insurance rates and specifically targeted Mulready’s competitive market claim.

“It appears Oklahoma’s market for homeowners’ insurance is anything but competitive,” Drummond said.

In a defiant response to KFOR, Mulready refused to back down.

“By federal standards, Oklahoma’s homeowners market remains highly competitive, far from being considered non-competitive,” Mulready said.

An Oklahoma Watch investigation into measures of market concentration and the history of Oklahoma insurance law revealed Mulready’s response to be highly misleading.

Competition is Not Federal

Mulready’s response to the attorney general marked a sharp shift in rhetorical strategy: rather than relying on the total number of insurance companies to defend the level of competition, the commissioner cited what he called federal standards.

Strictly speaking, however, while federal actions have been taken to address anticompetitive behavior in the insurance industry, there are no federal standards that are strictly intended to measure competition among insurance companies.

In 1945, the McCarran-Ferguson Act established insurance as a unique industry with conditional immunity from federal antitrust laws. In short, regulation of competition was left entirely up to the states. Initially, many states opted for prior approval systems that required scrutiny of rate filings before insurance companies were permitted to charge customers. Over time, file and use systems (or use and file) like that in Oklahoma, which permitted insurance companies to begin charging customers prior to scrutiny, emerged in an attempt to enhance competition.

Competition was governed at the state level, not federally.

Mulready might have been referencing tools that are used to assess competition in antitrust analysis. There are two main calculations that are performed to measure whether proposed mergers will adhere to antitrust laws. Although the insurance industry is often not required to comply with antitrust laws, these calculations are sometimes used to provide a rough evaluation of competition in other markets and industries, including insurance.

The four-firm concentration ratio, or CR4, is the sum of the percentage of market share of the top four firms in a market: a higher number suggests a lack of competition. The Herfindahl-Hirschman Index, or HHI, squares the percentage of market share of all of a market’s firms to produce a number between 0 and 10,000: a lower number indicates higher competition.

Oklahoma Watch performed CR4 and HHI calculations for the last ten years of the Oklahoma homeowners market, using data from the National Association of Insurance Commissioners. The result was mixed. The numbers showed that Oklahoma did not suffer from an egregiously noncompetitive market, nor did it enjoy a highly competitive market, as the commissioner has consistently said.

With an average HHI score of 1319 — in 2024, State Farm, Allstate, Farmers, and USAA accounted for 60.12% of the state’s homeowners coverage — Oklahoma’s homeowners market is moderately concentrated. Moderate concentration is a borderline oligopoly, in which a few companies dominate a market with many players; such a market is at risk of creating barriers to competition or violating antitrust law.

Regardless of concentration, both CR4 and HHI show that competition in the Oklahoma homeowners market has remained flat over the last ten years. As Mulready has continued to insist that Oklahoma enjoys a highly competitive market — and as rates have skyrocketed — competition as measured by CR4 and HHI has not budged.

It Gets Strange

Mulready also offered a peculiar claim that Oklahoma’s market was “far from being considered non-competitive.”

This is strange because in a quirk of grammar, Oklahoma insurance law defines competition as a market that the insurance commissioner has not found to be noncompetitive.

In other words, for a market to be judged noncompetitive, it’s the commissioner alone who must consider it to be noncompetitive.

It gets stranger from there.

Codified 20 years ago, the law erects a dizzying bureaucratic obstacle to declaring a noncompetitive market; it’s happened only once, under murky legal circumstances and not under the current commissioner.

Section 984 of Title 36 lays out the terms that the commissioner should use in monitoring competition in the state. The terms are simultaneously targeted and vague. The commissioner should consider the total number of insurers, but no number is specified to define competition. The commissioner should monitor changes in market share over a reasonable amount of time, but reasonable is not defined. The commissioner should consult measures of market concentration, presumably like CR4 and HHI, but no particular measure is listed.

Furthermore, the language of the law toggles between what the commissioner shall do and what he or she may do. Shall and may are terms of art that establish when an official is absolutely required to do something and when they may choose to do it or not, according to their discretion.

In short, the entire question of competition in Oklahoma insurance law is left in the hands of a single individual who is not legally required to follow a set of vague instructions.

It Was Not Always Thus

For more than seven decades, as recently as 1982, property and casualty insurance — which includes homeowners, auto, and other forms of insurance — was governed by a five-member State Board for Property and Casualty Rates, chaired by the commissioner and rounded out with four people appointed by the governor.

By 1987, with the passage of the Oklahoma Insurance Rating Act, the board was no more and the singular role of the commissioner appeared to have solidified. Nevertheless, there were marked differences between the current law and the law at that time.

Section 901.1, a still active statute, establishes that rate filings will be regulated so that they are not excessive (for consumers), not inadequate (for insurance company profits), and not discriminatory. The law speaks of the need to authorize cooperation among insurance companies and to foster competition while regulating to prevent practices that would lessen competition.

Twenty years later, everything changed.

With the passage of the Property and Casualty Competitive Loss Cost Rating Act, the existence of a competitive market is presumed. The regulation of excessive rates — that is, rates too high for consumers — was abolished, barring extraordinary action by the commissioner alone.

Those who wrote the new laws appeared to understand that they were undermining the rest of Title 36. A now superseded provision made a clear announcement: there was a new sheriff in town.

“No other law relating to insurance and no other provisions in this Code heretofore or hereafter enacted shall apply to or be construed as supplementing or modifying the provisions of the Property and Casualty Competitive Loss Cost Rating Act,” the statute reads.

The Property and Casualty Competitive Loss Cost Rating Act has not been significantly modified in more than two decades.

A Talking Point

For Birny Birnbaum, formerly chief economist and associate commissioner at the Texas Department of Insurance and a long-time consumer representative at the National Association of Insurance Commissioners, there is little meaningful competition in most insurance markets — particularly homeowners — because insurance companies wield far more market power than consumers.

Agreeing with Fugate that insurance is a unique product, Birnbaum questioned the relevance of using CR4, HHI, or the total number of insurers — measures traditionally used to evaluate proposed mergers — in the modern insurance industry. A core problem, Birnbaum said, was an assumption that undergirds the theory of competition: that consumers have the ability to discipline sellers on price and terms; that is, exert pressure that will drive prices down.

“That doesn’t really work very well in insurance,” Birnbaum said.

It doesn’t work for several reasons, Birnbaum said. Auto and homeowners are captive markets, meaning consumers are required to make a purchase, and cannot withdraw if a price is too high or terms are unfair. Additionally, Birnbaum said, there is virtually no information available to consumers about how well an insurance product performs. Insurers and regulators have this information but they keep it secret, Birnbaum said.

“Insurers have done a spectacular job of controlling these data,” Birnbaum said, in a 2018 presentation on competition in the insurance industry at the American Law Institute.

Birnbaum offered a robust, multi-point challenge to the logic of Mulready’s oft-repeated claim that the quantity of insurers alone signals a competitive market.

First, the number of insurers has no effect on the number of accidents or weather events that result in claims, Birnbaum said.

“The number of players in the market is not going to affect the total claim cost,” Birnbaum said, noting that claim costs are the single biggest factor driving rates.

Additionally, Birnbaum said, companies’ remaining costs — settlements, infrastructure, advertising, administration — tend to favor larger companies that can spread costs over a broad consumer population. Smaller companies, Birnbaum said, are unlikely to exert market pressure on larger companies even if they accept a lower profit margin.

Since at least 2015, the Oklahoma homeowners market has been dominated by State Farm, which controls 30% of the market; many smaller companies command 2% or less.

“All of this is to say that while companies might offer different choices and different coverage options, the idea that new or more companies can drive down the cost of insurance is simply wrong,” Birnbaum said.

Oklahoma insurance law addressing competition is out-of-date, Birnbaum said. Traditional market analysis might have been appropriate 50 years ago, when new competitors were in fact driving costs down, but that form of analysis is inappropriate to a modern environment dominated by big data and artificial intelligence, Birnbaum said.

A new problem is an explosion in the number of risk factors that insurers use to maximize profits, such as credit rating or criminal history, Birnbaum said. Instead of insurers competing to secure customers at lower rates, Birnbaum said, companies today compete among themselves to identify and attract profitable consumers while less-favored consumers — like those with bad credit — see no competition for their business.

In other words, rather than insurers competing against each other, the modern insurance industry pits consumer against consumer and the playing field is tilted in favor of those who already enjoy an advantage.

Birnbaum said that the complexity of insurance law could create the opportunity for misdirection.

“If you want to defend the status quo, then you point to things that sound good,” Birnbaum said. “If you’re talking to legislators that don’t understand the mechanics, the economics of an insurance premium, and you say, ‘Well, more competitors are better,’ that’s going to resonate with them. It’s a good talking point.”

An Active Investigation

Mulready characterized Drummond’s fiery Aug. 12 letter as a benign request to collaborate with the Consumer Protection Unit, housed in the office of the attorney general.

“I welcome that opportunity,” Mulready said.

Ten weeks after Drummond’s letter was delivered, Oklahoma Watch queried the Consumer Protection Unit to ask whether the proposed collaboration had come to pass.

“We don’t have anyone who can interview on this at this time,” Press Secretary Leslie Berger said in an email. “But we have discussed the matter with the Insurance Department and we are actively investigating.”

Asked whether this meant that consumer protection and the insurance department were collaborating on an investigation or that the attorney general was investigating the insurance department for some sort of malfeasance, Berger refused to clarify.

“We can’t do an interview on this at this time or provide more information because it’s part of an active investigation,” Berger said in an email.

Mulready’s response to Drummond claimed that the insurance department was planning a significant push for new law.

“Additionally, we plan to work with legislative leaders to introduce a package of homeowners insurance-related legislation in the upcoming session aimed at improving affordability, claim resolution, and legal reform that will benefit Oklahoma consumers,” Mulready wrote.

After hosting their respective interim studies, Kirt and Fugate said they had not been contacted by the insurance department about any proposed legislation.

Oklahoma Watch reached out to every member of the Senate’s Business and Insurance committee and the House’s Committee on Insurance, a subcommittee of the Commerce and Economic Development Oversight committee, to ask if they had been contacted about proposed legislation.

Six responded. Rep. Mark Tedford, R-Jenks, said that Mulready had been in touch with a handful of legislators and had indicated that he was relying on HHI data to confirm that Oklahoma’s homeowners market remains competitive.

The committee members offered little detail about what legislation might be considered; rather than offering solutions of their own, the lawmakers appeared content to wait for Mulready to indicate his own preferences as to possible new law.

Tedford was uncertain as to whether fundamental changes would be considered.“I expect there will be legislation introduced this session to adjust the Property and Casualty Loss Cost Rating Act, but it remains to be seen whether it will gain traction,” Tedford said in an email.

Oklahoma Watch (OklahomaWatch.org) is a nonprofit, nonpartisan news organization that covers public-policy issues facing the state.

This story is part of our investigative series on homeowners insurance rates in Oklahoma. You can find all the previous stories at https://oklahomawatch.org/series/hail-no-why-homeowners-insurance-is-so-expensive/