Deregulating Property-Liability Insurance

Article excerpt

Deregulating Property-Liability Insurance, edited by J. David Cummins, 2002, Brookings Institution Press, 408 pages. Reviewer: David L. Eckles, Assistant Professor of Risk Management and Insurance, University of Georgia, Athens, GA.

Deregulating Property-Liability Insurance is a collection of papers presented at a conference regarding insurance regulation sponsored by the American Enterprise Institute-Brookings Institution Joint Center for Regulatory Studies in January 2001. Specifically, the conference and the papers primarily focus on the private passenger automobile insurance market, and the regulation thereof. The conference examined five states, three of which are known for their strict regulation within the private passenger automobile market. Massachusetts, New Jersey, and California were the states studied by Sharon Tennyson, Mary A. Weiss, and Laureen Regan; John D. Worrall; and Dwight M. Jaffee and Thomas Russell, respectively. The remaining states studied included Illinois (by Stephen P. D'Arcy) and South Carolina (by Martin F. Grace, Robert W. Klein, and Richard D. Phillips), both of which have deregulated their private passenger automobile insurance markets (South Carolina has only recently deregulated, while Illinois had done so many years ago). In addition to the studies of these specific states, Scott E. Harrington examined data from all of the states in an effort to determine the effects of prior approval rate regulation on a variety of industry/consumer concerns (including loss ratios and increases in the average cost of private passenger automobile insurance). In addition to a fairly comprehensive examination of regulation within the private passenger automobile market in the United States, Georges Dionne and Richard Butler provide studies of insurance regulation in other countries (Dionne) and within other insurance markets in the United States (Butler).

In Deregulating Property-Liability Insurance, J. David Cummins (Editor) synthesizes these papers into one text that outlines the arguments for and against insurance rate regulation. The general theme of the book is that while regulation may serve a useful purpose in some insurance markets, the marketplace for private passenger automobile insurance is sufficiently competitive to make insurance regulation not only unnecessary, but also detrimental. This conclusion is borne from (most of) the aforementioned studies, as well as Cummins's own introductory chapter. Sprinkled between the individual papers are comments on the papers from other experts and authors well known to JRI readers (including Richard A. Derrig, David Appel, and Georges Dionne). A brief synopsis of each chapter follows.

Chapter one is an introductory chapter written by the editor, J. David Cummins. In a book comprising numerous independent studies by different authors, Cummins's chapter nicely brings everything together. Cummins provides a brief history of insurance regulation as well as the various theories for why insurance regulation exists. Cummins points out that the evidence from the subsequent chapters suggests that ongoing insurance regulation is not a result of insurers engaging in unfair practices (cartels, monopolistic pricing, etc.), but rather is a result of consumers desiring lower premiums (primarily resulting from subsidies from lower risks to higher risks). In this chapter, Cummins also outlines the arguments and evidence presented in the remaining chapters, both for and against deregulation.

Chapter two is an essay entitled "Automobile Insurance Regulation: The Massachusetts Experience" written by Tennyson, Weiss, and Regan. The essay gives an overview of the Massachusetts regulatory system and considers the impact of the regulation on various aspects of the automobile insurance industry in Massachusetts. The authors consider regulatory impact on individual rates (and the subsidies present), regulatory impact on firm performance, regulatory impact on insurance costs for all drivers, regulatory impact on the market structure, as well as regulatory impact on competition. …