The Cost of Duplicative Regulation: Evidence From Risk Retention Groups |
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| Authors: | J. Tyler Leverty |
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| Affiliation: | J. Tyler Leverty is Assistant Professor, TRISTAR Risk Management Fellow, Department of Finance, Henry B. Tippie College of Business, University of Iowa. The author can be contacted via e‐mail: ty‐leverty@uiowa.edu. |
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| Abstract: | A vast majority of insurers are regulated by each state in which they conduct business; however, a small subset of specialized firms, risk retention groups (RRGs), are largely exempt from most aspects of duplicative regulation no matter how many states they operate. This article analyzes the differences between RRGs and standard insurers specializing in commercial liability insurance to determine the cost of duplicative regulation. The costs associated with multi‐state regulation are significantly higher than those for single‐entity regulation. These high regulatory compliance costs reduce the technical efficiency of firms, deter firms from operating in additional states, and increase the price of insurance. |
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