Deregulating Property - Casualty Insurance Pricing: The Case of Workers' Compensation

Abstract

Property and casualty lines of insurance have traditionally been subject to more regulatory price control than most goods in the U.S. economy. However, beginning in the 1970s, some states began to deregulate these lines of insurance, dropping either mandatory pricing in concert by means of rating bureaus or, in addition, dropping regulatory prior approval of premiums. This paper assesses the impact of rate deregulation in workers' compensation insurance. Besides examining the impact of deregulation on price, we examine effects on injury rates, as rate regulation may have reduced incentives for workplace safety by restricting price differences across risk classes. We find that eliminating both rate bureau pricing and prior approval reduced long-run premiums by 13.7 percent and reduced injury rates by at most 8.2 percent. In contrast, eliminating only rating bureau pricing had small effects.