Intersesting Papers

RiskProf (all three of us were there) went to to Chicago earlier this week for a conference put on by the Northwestern Law School's Searle Center.

Some interesting papers (in no order of importance)

A Jurisdictional Competition Approach to Reforming Insurance Regulation by Henry N. Butler, Northwestern University School of Law and Larry E. Ribstein, University of Illinois College of Law

This paper suggests a different approach to the insurance regulation debate that is quite interesting. Essentially we would let insurers choose a state that is its regulator and it can then operate in any other state. No matter which state the insurer operates it is bound by the rules of its home state. The idea is similar to the corporate chartering laws. butler and Ribstein's approach would allow the legislature of any state to set some parameters on how a foreign company operates within the state, but for the most part, insurers would have unfettered access to every state and only have to comply with home state regulations. This, arguably, would allow more regulatory competition among the states akin to the style of competition we see with corporate codes.

Rate Regulation, Uninsured Driving and the Cost of Automobile Accidents by Sharon Tennyson, Cornell University & Mary Weiss, Fox School of Business, Temple University.

This paper suggests that automobile rate regulation (which is often justified so that people can afford auto insurance so they do not drive without cover) has not been a successful public policy. Strict price regulation, in fact, is associated with higher costs since society subsidizes high risk drivers.

The Past and Future of Insurance Regulation: The McCarran-Ferguson Act and Beyond Robert W. Klein, J. Mack Robinson College of Business, Georgia State University & Martin F. Grace, Department of Risk Management, Georgia State University

Awesome review of where we are and how we got there by two of the The Robinson College's best 11th Floor (on the north side of the building) insurance regulatory economists. Modesty prohibits me from saying more. However, download this paper only if you have insomnia! We promise the final version will be a bit shorter.

Influences on Organizational Form on Medical Malpractice Insurer Operations by Joan Schmit, Actuarial Science Risk Management and Insurance Department, University of Wisconsin & Yu Lei, Barney School of Business, University of Hartford

Over the last three waives of tort reforms, a number of physician directed med mal insurers have formed to provide insurers to local docs.
This paper analyzes the performance of their reserving practices (How well they estimate future losses when the claims first come in). The authors find that, because physician directed med mal companies tend to be single line/ single state companies, they do not have the ability to diversity across lines of business or geography. As a result then they may behave differently. The authors find that they tend to over reserve and have lower long run loss volatility compared to non-physician directed med mal insurers. This suggests to me, but is not shown in the paper that these types of companies are less prone to the periodic shocks that occur in the market.


How Tort Reform Affects Insurance Markets by Martin F. Grace, Robinson College of Business, Georgia State University & J. Tyler Leverty, Henry B. Tippie College of Business-University of Iowa

Consumer advocates are always saying things like tort reform just benefits insurance companies and we know this because premiums never fall after tort reform (see here for example). The paper notes that since 1985 some 40 out of 148 tort reforms are judicially overturned. Rational insurers should price liability insurance based on the likelihood that tort reform will "stick" rather than merely on the presence of a law which has some probability of being declared unconstitutional. The paper replicates earlier work which suggests premiums do not fall and then shows that if one controls for the likelihood of the reforms' survival, that for the most part loss are lower, premiums, are lower, loss volatility is lower, and more firms enter the liability insurance lines when the reform is expected to stick. Also, some guy in the audience accused us of reverse engineering the result. I didn't get mad about it until about two hours later. So there were no snippy ripostes to report.