Academic journal article Journal of Risk and Insurance

Prices, Distribution Channels and Regulatory Intervention in European Insurance Markets

Academic journal article Journal of Risk and Insurance

Prices, Distribution Channels and Regulatory Intervention in European Insurance Markets

Article excerpt

The "Cost of Non-Europe" reports suggest that the opening of European national financial services markets will benefit consumers by increasing competition. But these gains are only some of the potential consumer benefits that may result from European market integration. The EC-member countries have developed quite different schemes of insurance market regulations. Except for an agreement on some basic aspects such as solvency regulations, a harmonisation of the national rules of insurance market regulations was not achieved. For the time being, some markets continue to be highly regulated while others remain relatively unregulated. When freedom of service will be finally realised in Europe, insurance contracts written under different regulatory rules will compete with each other. Ultimately, as the volume of exports grows, the national regulatory rules will be put to the market test. This paper provides an empirical analysis of how regulatory schemes affect key market characteristics and thus contribute to an understanding of the forces unleashed by the freedom of service program.

Numerous studies which deal with the influence of regulation on insurance premiums have been carried out for the United States (see Harrington, 1984). A price level index is chosen; typically the inverse of the loss ratio, premium divided by the benefits paid to consumers, is analysed. The larger the proportion of premiums paid out as benefits to policyholders, the lower the price of the insurance is considered to be. A drawback of this approach is that price differences that are due to quality differences cannot be controlled for if no suitable measure of product quality is available (a study that takes variations into account is that by Pauly, Kunreuther, and Kleindorfer, 1986). …

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