Rate Regulation, Safety Incentives, and Loss Growth in Workers' Compensation Insurance

Posted: 12 Sep 2000

See all articles by Scott E. Harrington

Scott E. Harrington

University of Pennsylvania - Wharton School

Patricia M. Danzon

University of Pennsylvania - Health Care Systems Department; National Bureau of Economic Research (NBER)

Abstract

We analyze the relationship between insurance rate regulation, inflationary cost surges, and incentives for loss control using state-level data on workers' compensation insurance for 24 states during 1984-90. Regulators often responded to rapid-loss growth during this period by denying rate increases or approving increases that were less than initially requested by insurers. We test whether rate suppression increased loss growth by distorting incentives for loss control. Our regressions indicate a positive and statistically reliable relationship between loss growth and lagged measures of regulatory price constraints, suggesting that rate regulation increased the frequency and/or severity of employee injuries.

JEL Classification: J28, L50

Suggested Citation

Harrington, Scott E. and Danzon, Patricia M., Rate Regulation, Safety Incentives, and Loss Growth in Workers' Compensation Insurance. Journal of Business, Vol. 73, No. 4, October 2000. Available at SSRN: https://ssrn.com/abstract=237807

Scott E. Harrington (Contact Author)

University of Pennsylvania - Wharton School ( email )

3641 Locust Walk
Colonial Penn Center
Philadelphia, PA 19104-6358
United States
215-898-9403 (Phone)
215-573-2157 (Fax)

HOME PAGE: http://scottharringtonphd.com/

Patricia M. Danzon

University of Pennsylvania - Health Care Systems Department ( email )

3641 Locust Walk
Colonial Penn Center
Philadelphia, PA 19104-6358
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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