An Analysis of Property-Casualty Insurance Company Defense Expenditures

Abstract

Evidence from the property-casualty insurance industry suggests that some insurers tend to settle quickly and out of court, while others vigorously defend all claims. A 1999 change in the National Association of Insurance Commissioners reporting standards now requires that U.S. insurers submit detailed data related to defense cost expenditures. This study incorporates the new defense cost data in a quantile regression framework to assess the relation of insurer characteristics to expenditures on defense costs. Our results support the hypotheses that factors related to the type of business and business environment shape the insurer's defense expenditures.

Keywords: defense cost, quantile regression, property-casualty insurer

JEL Classification: G2, G22, K41