Competition and the Future of Property and Casualty Insurance Markets
State governments have a monopoly on the regulation of property and casualty insurance. That monopoly has resulted in restrictions on the provision of insurance. The regulation of rates, forms, coverage, entry and exit, and solvency standards prevents firms from offering innovative products at lower prices.
Rapid changes in telecommunications technology and increasing pressure from financial product innovation and international competition have made regulatory reform more necessary and viable. The pressure brought to bear by regulatory competition could encourage major market-based reforms on the state level. The result of such reforms would better serve the needs of customers and enhance the financial health of insurance markets.
In order to make competitive reforms viable, many questions remain unanswered regarding prices and costs, financial guarantees, liabilities, antitrust issues, consumer protection, and more. Confusions and uncertainties are widespread among economists and insurance policy analysts, business leaders, policymakers, journalists, consumer advocates, and others. As a result, a diversity of views regarding such reforms remains.
To address these confusions, the Independent Institute has assembled an outstanding group of economists and other experts to pursue a systematic and authoritative examination of property and casualty insurance regulation and deregulation. This program, Insurance Choices, includes the publication of a series of Independent Policy Reports and a major scholarly book along with a campaign of media communications to discuss the program’s findings and facilitate a new public debate.
Available Independent Policy Reports
|CATASTROPHES AND PERFORMANCE IN PROPERTY INSURANCE: A COMPARISON OF PERSONAL AND COMMERCIAL LINES
How do insurance regulations affect responses in the aftermath of natural disasters? Using empirical analysis, the authors explore which regulatory reforms for property insurance offer better long-term outcomes for consumers, insurers, and taxpayers.
Patricia H. Born (Associate Professor of Risk Management/Insurance, Real Estate & Business Law, Florida State University) and Barbara Klimaszewski-Blettner (doctoral candidate, Munich School of Management’s Institute for Risk and Insurance Management, Ludwig-Maximilians-Universitaet)
Download Policy Report (34 pages)
|ALTERNATIVE FRAMEWORKS FOR INSURANCE REGULATION IN THE UNITED STATES
This paper examines the benefits of optional federal charters as a legal alternative to the escalating contradictions, costs, and bureaucratic roadblocks of state insurance regulation.
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|CREDIT-BASED SCORING IN INSURANCE MARKETS
Insurance scoringthe use of credit information in insurance underwriting and pricingis an accurate, inexpensive predicator of insured losses, but confusion over its application and meaning often obscures its benefits. This report discusses the appropriateness of insurance scoring while demonstrating its positive effects on consumers and the insurance market.
Lawrence S. Powell (Whitbeck-Beyer Chair of Insurance and Financial Services, University of Arkansas, Little Rock)
Download Policy Report (16 pages)
|WATERY MARAUDERS: HOW THE FEDERAL GOVERNMENT RETARDED THE DEVELOPMENT OF PRIVATE FLOOD INSURANCE
The author examines how America’s National Flood Insurance came into existence and why private flood insurance never developed in the United States on a significant scale. Three sections include 1) a theoretical framework about what flood insurance does and how it ought to work; 2) the early history of the flood insurance program including how the federal government first took on the responsibility for flood protection; and 3) a discussion of how the U.S. got its current system of flood insurance that is stripped of a risk-based character.
Eli Lehrer (Senior Fellow, Competitive Enterprise Institute)
Download Policy Report (31 pages)
|INSURANCE REGULATION IN THE UNITED STATES AND THE EUROPEAN UNION: A COMPARISON
Despite mounting empirical evidence that rules-based regulation in insurance slows or reverses market growth, action for reform has been ignored. Adding to the growing number of voices expressing discontent with the current system, a new report looks to the European Union as a model for change within the U.S.
Martin Eling (Professor of Risk Management and Insurance Industry, University of St. Gallen), Robert W. Klein (Director, Center for Risk Management and Insurance Research, Georgia State University), and Joan T. Schmit (Professor of Actuarial Science, Risk Management & Insurance, University of Wisconsin)
Download Policy Report (36 pages)
|PROPERTY INSURANCE FOR COASTAL RESIDENTS: GOVERNMENTS’ “ILL WIND”
Article (from The Independent Review, Fall 2008)
Responding to escalating costs in high hurricane risk areas, insurance companies have increased premiums and even withdrawn from some markets. Unfortunately, increased government regulatory policies have been counter-productive, shifting much of the cost of coastal development to taxpayers at large. Market forces, if allowed to work, would produce mitigating effects automatically.
Download Article (19 pages)
PERFORMANCE OF RISK RETENTION GROUPS: DRAWING INFERENCES FROM A PROTOTYPE OF COMPETITIVE FEDERALISM
J. Tyler Leverty (Professor of Finance, University of Iowa)
CASE STUDIES OF INSURANCE REGULATORY FAILURES
Martin F. Grace (James S. Kemper Professor of Risk Management and Insurance, Georgia State University)
EFFICIENCY OF STATE REGULATION IN PROPERTY AND CASUALTY INSURANCE
David Eckles (Professor of Risk Management and Insurance, University of Georgia)
REGULATORY BURDENS AND THE COST OF INSURANCE
Stephen Pociask (President, TeleNomic Research, LLC)
CAPTIVE INSURANCE AND REGULATION OF PROPERTY AND CASUALTY INSURANCE
Andrew P. Morriss (H. Ross and Helen Workman Professor of Law and Professor of Business, University of Illinois)