Market Reaction to Regulatory Capture and Political Risk in a Highly-Salient Environment

Journal of Insurance Regulation, Forthcoming

33 Pages Posted: 20 Apr 2010  

Randy E. Dumm

Florida State University - Department of Risk Management/Insurance, Real Estate and Business Law

Andre P. Liebenberg

University of Mississippi - School of Business Administration

Ivonne A. Liebenberg

Joseph S. Ruhland

Georgia Southern University - College of Business Administration

Date Written: April 5, 2010

Abstract

The catastrophic losses from the combined 2004 and 2005 hurricane seasons resulted in significant price increases and mass non-renewals in the residential property insurance market in Florida. The public outcry to these insurer decisions yielded a highly salient insurance pricing environment. On November 29, 2006, Governor-elect Crist called for a special legislative session to provide relief to Florida residents and businesses, making good on his campaign pledge of addressing high insurance costs. We hypothesize that the call for the special session was indicative of consumer groups having captured the regulatory/legislative process, to the detriment of the insurance industry. The apparent shift in regulatory capture from the insurance industry to consumers implies an increase in political risk. Consistent with our hypothesis, we find that publicly traded homeowners’ and commercial multi-peril insurers with Florida exposure experienced a negative stock price reaction to the announcement of the special session.

Suggested Citation

Dumm, Randy E. and Liebenberg, Andre P. and Liebenberg, Ivonne A. and Ruhland, Joseph S., Market Reaction to Regulatory Capture and Political Risk in a Highly-Salient Environment (April 5, 2010). Journal of Insurance Regulation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1592623

Randy E. Dumm

Florida State University - Department of Risk Management/Insurance, Real Estate and Business Law ( email )

College of Business
Tallahassee, FL 32306
United States

Andre P. Liebenberg (Contact Author)

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

Joseph S. Ruhland

Georgia Southern University - College of Business Administration ( email )

United States

No contact information is available for Ivonne A. Liebenberg

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