Insurance Company Failures: Why Do They Cost so Much?

Georgia State University Center for Risk Management and Insurance Research Working Paper No. 03-1

39 Pages Posted: 20 Nov 2003

See all articles by Martin F. Grace

Martin F. Grace

Temple University - Risk Management & Insurance & Actuarial Science

Robert W. Klein

Georgia State University

Richard D. Phillips

Georgia State University - Risk Management & Insurance Department

Date Written: October 30, 2003

Abstract

Historical evidence shows insurer insolvencies are, on average, three-to-five times more expensive than those of other financial institutions. Using a unique dataset of insurer insolvencies from 1986 to 1999, we examine the cost of insolvency resolution and the factors driving these costs. We find firms in relatively better shape before being seized impose lower costs on the insolvency system. Further, we find evidence consistent with non-benevolent behavior by regulators, both before and after the firm fails, which adds significantly to the resulting costs of the insolvency.

Keywords: Insurance, bankruptcy, regulation

JEL Classification: G22, G28, G33

Suggested Citation

Grace, Martin F. and Klein, Robert Warren and Phillips, Richard D., Insurance Company Failures: Why Do They Cost so Much? (October 30, 2003). Georgia State University Center for Risk Management and Insurance Research Working Paper No. 03-1. Available at SSRN: https://ssrn.com/abstract=463103 or http://dx.doi.org/10.2139/ssrn.463103

Martin F. Grace (Contact Author)

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

Robert Warren Klein

Georgia State University ( email )

5387 Northchester Ct
Atlanta, GA GA 30338
United States
404-386-1591 (Phone)

Richard D. Phillips

Georgia State University - Risk Management & Insurance Department ( email )

P.O. Box 4036
Atlanta, GA 30303
United States
404-413-7009 (Phone)

HOME PAGE: http://robinson.gsu.edu/profile/richard-d-phillips/

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