Insurance Deregulation and the Public Interest by Scott E. Harrington

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By Scott E. Harrington

This examine outlines the compelling case for frequent deregulation of property-liability coverage charges and varieties.

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SCOTT E. HARRINGTON 31 5 Counterproductive and Futile Aspects of Rate Regulation Adverse Effects of Rate Regulation T able 5-1 summarizes the possible effects of prior approval regulation of rate changes and regulation of risk classification. After reviewing the most important effects, I focus on several key issues. Direct Costs of Prior Approval. Prior approval regulation involves direct costs of administration and compliance, including the costs associated with uniform data-reporting requirements for ratemaking information across insurers in a state.

7. Most states also require uniform reporting of ratemaking information in rate filings by insurers, but the requirements differ across states. 8. File-and-use laws require insurers to file rates on or before their effective date, and the insurers can use the rates without prior approval. Use-and-file laws require insurers to file rates within a specified period after they become effective. See American Insurance Association (1999) for a comprehensive description of rate and form regulation across states.

Harrington (1984) surveys earlier work. 52 INSURANCE DEREGULATION AND THE PUBLIC INTEREST NOTES 42. Note that any comparison of that type requires caution, given the possibility that factors besides type of rating law, including accounting anomalies in some states and random variation in loss ratios, could affect the results. 43. 15 percent) of the threeyear average loss ratios. 44. I also compared the standard deviation of the ratio of a state’s auto insurance loss ratio with the national average from 1995 through 1997 by type of rating law.

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