The Political Economy of Automobile Insurance: Elected vs. Appointed Regulators

Ghanshyam Sharma
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Ghanshyam Sharma: RV University

Chapter Chapter 3 in Empirical Applications of the Median Voter Model, 2025, pp 27-57 from Springer

Abstract: Abstract I examine how two selection systems for regulators, election and appointment, affect outcomes in a market with multiple firms. Traditional theory suggests that elected regulators are pro-consumers, while appointed regulators are pro-industry. I scrap the website of a major firm to collect individual-level data on premiums paid on auto insurance policies. I show that elected regulators choose policies salient for most consumers (lower premiums) in contrast to appointed regulators. This impact is larger and statistically significant in the counties where a majority of state’s population is concentrated. This result is confirmed by the state-level data. I also show that competition between firms ensures that firms offer a better product (higher payments on claims filed by policyholders) in states with appointed commissioners. Hence, in a market with multiple firms, an elected regulator offers a bundle of lower prices and inferior product, while an appointed regulator does not ensure pro-industry outcomes.

Date: 2025
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DOI: 10.1007/978-3-031-87179-5_3

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