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The Effects of an Optional Federal Charter on Competition in the Life Insurance Industry

148 Pages Posted: 3 Nov 2007  

Martin F. Grace

Temple University - Risk Management & Insurance & Actuarial Science; Georgia State University - Robinson College of Business; Georgia State University - Andrew Young School of Policy Studies

Robert W. Klein

Georgia State University - Center for Risk Management and Insurance Research

Date Written: October 24, 2007

Abstract

In this report we examine the likely effects of an Optional Federal Charter (OFC) regulatory system on competition in the life insurance and annuities industry and related markets. Increasingly, many US insurers advocate the creation of an OFC and the associated regulatory framework for several reasons. Primarily, they believe that the adoption of an OFC would reduce the costs and impediments imposed by the current state-based regulatory system. Further, they believe that the adoption of an OFC structure will facilitate interstate operations and enhance the industry's competitiveness relative to other financial service providers and international insurers. The proposal of an OFC system has generated an intensive debate on a number of issues, including its implications for market competition and the associated effects on consumers. Based on our analysis, we conclude that the life insurance industry is structurally competitive based on its inherent characteristics but that many insurers have not fully achieved maximum efficiency due, at least in part, to the barriers and costs caused by state regulation. Our analysis further leads us to the opinion that the creation of an OFC, properly structured and implemented, would likely increase competition in the US life insurance industry, the broader market for financial services, and international insurance markets.

Keywords: insurance regulation, federal regulation

JEL Classification: G28, L51

Suggested Citation

Grace, Martin F. and Klein, Robert W., The Effects of an Optional Federal Charter on Competition in the Life Insurance Industry (October 24, 2007). Available at SSRN: https://ssrn.com/abstract=1027135 or http://dx.doi.org/10.2139/ssrn.1027135

Martin F. Grace (Contact Author)

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

Georgia State University - Robinson College of Business ( email )

P.O. Box 4036
Atlanta, GA 30302-4036
United States
404-651-2789 (Phone)
404-651-4219 (Fax)

HOME PAGE: http://www.rmi.gsu.edu

Georgia State University - Andrew Young School of Policy Studies

Department of Economics
35 Broad Street, 6th Floor
Atlanta, GA 30303-3083
United States

Robert Warren Klein

Georgia State University - Center for Risk Management and Insurance Research ( email )

P.O. Box 4036
Atlanta, GA 30302-4036
United States
404-651-4031 (Phone)
404-651-1897 (Fax)

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