Insurance Price Regulation — An Important APCIA Report

The American Property Casualty Insurance Association (APCIA) took a shot at the overregulation of insurance and published a report titled, Price Regulation and its Effects on Insurance Markets: Analysis and Case Studies. The author is insurance expert and University of Iowa professor of finance Dr. Martin Grace.

APCIA Senior Vice President Robert Gordon said the report’s conclusion is what most of us already know. Overregulation causes major problems in insurance markets which — eventually — trickles down to consumers.

“Insurance markets function best when allowed to operate competitively, free from excessive price regulation,” Gordon said. “As illustrated in the report, the evidence from multiple state case studies shows that while politically appealing, strict price controls ultimately harm the consumers they aim to protect. Regulatory rate suppression might be a sugar high in the short term, but in the long term it devastates the markets and the availability of insurance for consumers.”

The report notes the most overregulation is in personal lines and suggest regulators should model personal lines pricing after the price freedom found in commercial lines.

“Evidence suggests that the deregulation seen in commercial lines of insurance, which enjoy greater pricing freedom, demonstrates superior performance even after catastrophic events,” the report said. “This stark contrast with heavily regulated personal lines underscores how market-based solutions enhance resilience and stability. States with competitive markets, like Illinois, consistently show the ability to weather market shocks while maintaining long-term price stability.”

Dr. Grace’s report also notes that regulators often look at price controls as a quick fix.

“While regulation may seem like a quick fix for market pressures, it often creates decades-long problems that far outlast the temporary conditions that sparked intervention,” the report concluded. “Insurance is voluntary, and companies will exit markets where they cannot operate profitably. The most effective path forward is to allow market forces to determine prices, enabling insurers to price based on risk while fostering competition that naturally protects consumer interests.”

The PIA Western Alliance state of California is a good example of insurers abandoning a state with too many regulations and a rate increase system that is exceptionally slow, and often politically motivated.

The report looked at case studies in California and Florida, Massachusetts, New Jersey, and South Carolina to come to its conclusions.

Source link: APCIA — https://bit.ly/4hJhUST

Source link: Insurance Journal — https://bit.ly/4aKFMU2