The Effects of Regulated Premium Subsidies on Insurance Costs: An Empirical Analysis of Automobile Insurance

28 Pages Posted: 4 Aug 2010

See all articles by Mary A. Weiss

Mary A. Weiss

Temple University

Sharon L. Tennyson

Cornell University - Department of Policy Analysis & Management (PAM)

Laureen Regan

Temple University - Risk Management & Insurance & Actuarial Science

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Abstract

State regulation of rates is sometimes used as a means to make automobile insurance more affordable to consumers by restricting insurer profits and pricing practices. Incentive distortions arising from this type of rate regulation might lead to higher accident rates and higher insurance loss costs. Annual state-level panel data for the time period 1980–1998 are used to investigate these effects, using empirical methods that recognize the endogenous determination of states’ regulatory choices. Results suggest that rate regulation that systematically suppresses (some or all) drivers’ insurance premiums is associated with significantly higher average loss costs and higher insurance claim frequency.

Suggested Citation

Weiss, Mary A. and Tennyson, Sharon L. and Regan, Laureen, The Effects of Regulated Premium Subsidies on Insurance Costs: An Empirical Analysis of Automobile Insurance. Journal of Risk and Insurance, Vol. 77, Issue 3, pp. 597-624, September 2010. Available at SSRN: https://ssrn.com/abstract=1653050 or http://dx.doi.org/10.1111/j.1539-6975.2010.01360.x

Mary A. Weiss (Contact Author)

Temple University ( email )

Fox School of Business and Management
1801 Liacouras Walk
Philadelphia, PA 19122
United States
215-204-1916 (Phone)

HOME PAGE: http://www.sbm.temple.edu/~rmidept/weiss.html

Sharon L. Tennyson

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

252 MVR Hall
Ithaca, NY 14853
United States
607-255-2619 (Phone)
607-255-4071 (Fax)

Laureen Regan

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

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

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