Costs and Benefits of Financial Regulation - An Empirical Assessment for Insurance Companies

41 Pages Posted: 14 Mar 2015

See all articles by Martin Eling

Martin Eling

University of St. Gallen - Institute of Insurance Economics; University of Saint Gallen - School of Finance (SoF)

David Pankoke

University of St. Gallen - School of Finance

Date Written: October 21, 2014

Abstract

We empirically analyze the costs and benefits of financial regulation based on a survey of 76 insurers from Austria, Germany and Switzerland. Our analysis includes both established and new empirical measures for regulatory costs and benefits. This is the first paper that takes costs and benefits combined into account using a latent class regression with covariates. Another feature of this paper is that it analyzes regulatory costs and benefits not only on an industry level, but also at the company level. This allows us to empirically test fundamental principles of financial regulation such as proportionality: the intensity of regulation should reflect the firm-specific amount and complexity of the risk taken. Our empirical findings do not support the proportionality principle; for example, regulatory costs cannot be explained by differences in business complexity. One potential policy implication is that the proportionality principle needs to be more carefully applied to financial regulation.

Keywords: Insurance, Regulation, Cost-Benefit Analysis, Proportionality Principle

Suggested Citation

Eling, Martin and Pankoke, David, Costs and Benefits of Financial Regulation - An Empirical Assessment for Insurance Companies (October 21, 2014). University of St. Gallen, School of Finance Research Paper No. 2014/20. Available at SSRN: https://ssrn.com/abstract=2577336 or http://dx.doi.org/10.2139/ssrn.2577336

Martin Eling (Contact Author)

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

University of Saint Gallen - School of Finance (SoF) ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

David Pankoke

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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