The Effect of Political Frictions on the Pricing and Supply of Insurance

Jessica Liu and Weiling Liu

The Review of Financial Studies, 2024, vol. 37, issue 4, 1149-1189

Abstract: Political frictions significantly affect both pricing and supply in the long-term care insurance (LTCI) market. Comparing the same insurer’s requests submitted for the same policy at the same time to different state regulators, we find that they are 13% more likely to be approved and receive 4% more of the requested amount after an election year. Over time, regulatory pushback on premium increase requests leads to persistently lower cash reserves and increases the probability of company dropout. An insurer who receives one-standard-deviation less of their requested increase is 20% more likely to leave the market next year.

Keywords: G22; G28 (search for similar items in EconPapers)
Date: 2024
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