Capital Regulation and Product Market Outcomes

1 Pages Posted: 8 Mar 2018 Last revised: 4 Feb 2020

See all articles by Ishita Sen

Ishita Sen

Harvard University - Harvard Business School; affiliation not provided to SSRN

David Humphry

Bank of England

Date Written: March 2, 2018


We present evidence of product market adjustments and asset reorganizations from the largest ever shift in risk regulation in a developed insurance market. Using proprietary data on insurance risk exposures from the Bank of England, we develop a measure of regulatory constraints that is plausibly exogenous to shifts in demand. After the regulatory shift, constrained insurers reduce underwriting of traditional insurance, which became more capital intensive, and alter product composition from traditional to non-traditional-non-insurance products that offer no protection to households. Large insurers slow down, but small insurers completely pull out of traditional underwriting. Constrained insurers undergo asset reorganizations, and small insurers are more likely to be fully taken over. As a result, there is significant decline in traditional insurance from £30 billion in 2002 to £5 billion in 2015 and increase in market concentration with the share of top 10 insurers increasing from 60% in 2002 to 80% in 2015. Our findings imply that the scarcity of traditional insurance after the regulatory shift is particularly pronounced for households that match with small insurers.

Keywords: Non-Traditional-Non-Insurance; Risk Regulation; Product Market Concentration; Small vs. Large Insurers; Insurance Risk Exposures

JEL Classification: G22, G28, G32

Suggested Citation

Sen, Ishita and Humphry, David, Capital Regulation and Product Market Outcomes (March 2, 2018). Bank of England Working Paper No. 715, Available at SSRN: or

Ishita Sen

Harvard University - Harvard Business School ( email )

Soldiers Field
Baker Library
Boston, MA 02163
United States

affiliation not provided to SSRN

David Humphry (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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