Solvency regulation in the property-liability insurance industry |
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Authors: | Iskandar S Hamwi Tim Hudson Yueyun Chen |
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Institution: | (1) University of Southern Mississippi, USA;(2) HSI LAI University, USA |
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Abstract: | This paper evaluates guaranty funds and solvency regulations. One main question addressed is how solvency regulations will
benefit consumers. Many previous studies have found that most forms of solvency regulations do not have significant deterrent
effects on insolvency. Even when solvency regulations are effective, they might still adversely affect consumers. This could
happen because increasing the probability of solvency usually requires raising premiums. Therefore, it is interesting to see
how regulators should design insurance regulations that benefit consumers. Insolvency of insurance firms provides a unique
environment under which one is able to analyze the effects of solvency regulations and guaranty funds on the quality of insurance
products and on consumers. This paper shows that guaranty funds are always desirable, but solvency regulations are of certain
value only when they have the effect of protecting guaranty funds and alleviating the disincentives which they create. |
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