ARIA 2021 Annual Meeting

Junhao Liu, The University of Sydney; Tyler Leverty, University of Wisconsin-Madison

This study reinvestigates the effect of stringent rate regulation on prices in the U.S. property-liability industry. Despite a rich literature on insurance rate regulation, the short-term and long-term effects of stringent rate regulation on insurance prices remain unclear. We extend this literature using data at the firm-line-state level, which allows us to estimate fixed effects regressions that exploit different sources of variation in rate regulation – across states, over time, and across lines – to determine whether and how stringent rate regulation effects prices. We find that, on average, stringent rate regulation lowers the unit price of insurance. The magnitude and duration of the influence of stringent rate regulation on price varies over time, with the biggest impact in the early 2000’s during and after a wave of deregulation. We also find suggestive evidence that differences in how states administer rate regulation impact rates.