Efficiency Consequences of Rate Regulation in Insurance Markets

Sharon Tennyson

No 2007-PB-03, NFI Policy Briefs from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: Despite the presence of many and diverse sellers of insurance in most markets, insurance prices in some markets remain subject to regulation by state governments. Insurance rate regulation has a long and storied history in this country and the reasons for its continued existence are subject to debate and interpretation. This paper critically examines the arguments for rate regulation and discusses the consequences of this regulation for the insurance marketplace. It first provides a brief overview of the history, scope and objectives of insurance rate regulation, examines the most prevalent justifications for rate regulation and argues that they are incorrect or incomplete. It then turns to the consequences of rate regulation for insurance market outcomes making use of both economic theory and empirical evidence from academic studies of regulated insurance markets. The paper concludes that insurance rate regulation entails high costs for society and for insurance consumers, and that alternative policies for meeting regulatory objectives should be considered.

Keywords: insurance; rate regulation (search for similar items in EconPapers)
Pages: 27 pages
Date: 2007-03
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Citations: View citations in EconPapers (4)

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