Product Ratings as a Market Reaction to Deregulation: Evidence from the German Insurance Market

24 Pages Posted: 27 Mar 2015

See all articles by Stephanie Müller

Stephanie Müller

Ludwig Maximilian University of Munich (LMU) - Munich Risk and Insurance Center

Sharon L. Tennyson

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

Date Written: Spring 2015

Abstract

This study provides the first investigation of information markets as a reaction to deregulation of product forms in insurance markets. The article studies the case of Germany, where insurance product ratings entered the market after relaxation of product regulation in 1994. The ratings’ potential for enhancing the performance of a deregulated insurance market is analyzed by considering both market structure and governance characteristics of the rating market, since the theoretical literature predicts that both are important determinants of rating outcomes. Data from a unique panel data set containing disability insurance ratings from the three major rating agencies are also examined in light of theoretical predictions. Results suggest that market governance and competition characteristics are favorable for the production of unbiased and informative ratings. Ratings for disability insurance support this interpretation, since the characteristics of the ratings conform to theoretical predictions about ratings in well‐functioning rating markets.

Suggested Citation

Müller, Stephanie and Tennyson, Sharon L., Product Ratings as a Market Reaction to Deregulation: Evidence from the German Insurance Market (Spring 2015). Risk Management and Insurance Review, Vol. 18, Issue 1, pp. 77-100, 2015, Available at SSRN: https://ssrn.com/abstract=2585785 or http://dx.doi.org/10.1111/rmir.12030

Stephanie Müller (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Munich Risk and Insurance Center ( email )

Schackstraße 4/III
Munich, 80539
Germany

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)

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