Does Technology Adoption Save Regulatory Compliance Costs?

32 Pages Posted: 4 Feb 2020

See all articles by J. Tyler Leverty

J. Tyler Leverty

University of Wisconsin - Madison

Junhao Liu

The University of Sydney - Discipline of Finance

Date Written: October 23, 2019

Abstract

We study whether digital technology streamlines the regulatory process and reduces the costs of complying with regulation. To identify the effect of digital technology on regulatory compliance costs, we leverage a quasi-experimental policy change which mandates the use of an internet-based flow management tool that enables insurers and regulators to exchange policy form and rate filing information. We find that digitization lowers the costs of complying with regulation. The average insurer per line of business and year in the highest quartile regarding the proportion of business under the mandate saves 5.4 percent of general expenses. Our results also suggest a fixed cost of adopting the technology, with larger cost-saving accruing to firms that adopt the new technology more widely.

Keywords: Technology Adoption, Compliance Costs, Insurance Regulation

JEL Classification: G22, G28, L51

Suggested Citation

Leverty, J. Tyler and Liu, Junhao, Does Technology Adoption Save Regulatory Compliance Costs? (October 23, 2019). Available at SSRN: https://ssrn.com/abstract=3517945 or http://dx.doi.org/10.2139/ssrn.3517945

J. Tyler Leverty

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Junhao Liu (Contact Author)

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

HOME PAGE: http://www.junhaoliu.com

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