Georgia Deregulates (mostly) Auto Insurance

Yesterday, Governor Perdue, singed a law recently passed (SB 276) by the legislature that would allow insurers to set prices in a free market for automobile insurance.  My colleague Rich Phillips and I made a couple of presentations to legislative committees on the issue.  Our main point was that Georgia was not in a crisis mode right now, so it would be easy to allow market competition to commence.  Our second point is that the research shows that price regulation in the states over the last 30 years or so does not yield consistently lower prices compared to competitive states.  So, if price regulation does not do a superior job at keeping prices low, why have it? 

For an influential set of papers on auto insurance deregulation, see the Brooking's/AEI Joint Center book here.  Here is our presentation for the talk we gave to the legislative committee.

What is interesting about this bill is that the mandatory coverage (minimum levels) required by law are still subject to price regulation, but the additional coverage are subject to competitive pricing.  Further according to the AJC, the consumer group, Georgia Watch, seemed to be ok with the new law.  However, their website suggests otherwise.

Comments

[Guy Thomas]

>>So, if price regulation does not do a superior job at keeping prices low, why have it?

Well, as a general proposition, because a higher average price might be a better outcome than a lower average price. Higher loss coverage. http://tinyurl.com/5tw6xg

...although more precisely, loss coverage is an argument is for restrictions on risk classification, not pre-approval of prices (which is a strange concept anyway to a Brit - it has always puzzled me that the government-hating US of A seems prone doing things like this, while "socialist" Britain doesn't). And if some level of cover is compulsory, then that's 100% loss coverage anyway, at least for that level of loss, and so in the case of compulsory insurance the loss coverage argument doesn't really apply. But it applies for any voluntary insurance: higher average premiums may be a better outcome.

One other contrary comment. Your presentation repeatedly castigates "subsidies" for "risky drivers", but you never explain why "subsidies" for "risky drivers" are undesirable. If you are thinking of incentive effects, perhaps it needs to be shown that the incentives actually have some effect. There is some evidence that they don't. http://ideas.repec.org/p/lue/wpaper/3.html