The Effects of Regulated Premium Subsidies on Insurance Costs: An Empirical Analysis of Automobile Insurance |
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| Authors: | Mary A Weiss Sharon Tennyson Laureen Regan |
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| Institution: | 1. Mary A. Weiss is a Professor of Risk, Insurance, and Healthcare Management at the Fox School of Business and Management, Temple University.;2. Sharon Tennyson is an Associate Professor in the Department of Policy Analysis and Management, Cornell University.;3. Laureen Regan is an Associate Professor of Risk, Insurance, and Healthcare Management at the Fox School of Business and Management, Temple University. Weiss can be contacted via e‐mail: mweiss@temple.edu. |
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| Abstract: | State regulation of rates is sometimes used as a means to make automobile insurance more affordable to consumers by restricting insurer profits and pricing practices. Incentive distortions arising from this type of rate regulation might lead to higher accident rates and higher insurance loss costs. Annual state‐level panel data for the time period 1980–1998 are used to investigate these effects, using empirical methods that recognize the endogenous determination of states’ regulatory choices. Results suggest that rate regulation that systematically suppresses (some or all) drivers’ insurance premiums is associated with significantly higher average loss costs and higher insurance claim frequency. |
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