More states should be moving towards reform of their insurance regulatory system for auto insurance rates, concludes a new study commissioned by the Insurance Research Council. The study, titled “The Long-Term Effects of Rate Regulatory Reforms in Automobile Insurance Markets,” was written by Sharon Tennyson, associate professor in the Department of Policy Analysis and Management at Cornell University. In the study Tennyson examined the insurance markets of three states before and after regulatory reform and examined the results for consumers and the insurance industry as a whole.
Tennyson found that by moving away from a strict approach when approving or denying new insurance rates, the three states saw improvements in their insurance markets, bought in the availability of insurance and in price.
For the study, the automobile insurance markets of South Carolina (reformed in 1999), New Jersey (reformed in 2004), and Massachusetts (reformed in 2008) were examined. Prior to the enactment of regulatory reforms, each state followed a strict approach to regulating automobile insurance rates and experienced severe stress in their automobile insurance markets. The study shows that in each state, following the adoption of regulatory reforms:
- Insurance premium expenditures declined relative to previous trends or projections
- Insurance availability increased or was maintained at previous levels as insurers were encouraged to write more business and enter markets for the first time
- Insurer underwriting results were maintained or improved to be consistent with regional or national averages
- Underlying claims rates decreased or remained at pre-reform levels
Supporters of insurance regulatory reform at the Insurance Research Council argue that the study shows that regulatory reform of how insurance rates are approved can be done without significant disruption in the insurance market. Elizabeth A. Sprinkel of the IRC holds up Tennyson’s study as evidence that strong government control over automobile insurance rate setting could in fact harm the market.
“The results of this study show that regulatory reforms have led to a number of positive developments without leading to increases in insurance prices or reductions in availability or service quality,” said Elizabeth A. Sprinkel, senior vice president of the IRC. “The favorable performance of the more market-based rate-setting introduced in these states provides strong support for the idea that strict government oversight of automobile insurance rate-setting is unnecessary, and may even be detrimental to markets and consumers.”