The Allocation of Governmental Regulatory Authority: Federalism and the Case of Insurance Regulation

Abstract

We investigate the incentives states have to provide insurance regulatory services in an efficient manner. Regulation of the insurance industry in the United States is unique, as it is conducted primarily at the state level whereas the majority of insurance sales are interstate. Consistent with predictions from the federalism literature, we find evidence of trans-state externalities, as states with small domestic insurance markets are less efficient producers of insurance regulation and appear to allow states that choose to expend the greatest resources to regulate for them. In addition, states with more profitable domestic insurers are shown to export greater levels of regulation, suggesting extraterritorial regulation may erect modest barriers to entry. We find evidence of increasing economies of scale in the production of insurance regulation after controlling for these regulatory externalities. Copyright The Journal of Risk and Insurance, 2007.

Regulating credit default swaps as insurance: a law and economics perspective

“…B state-based regulation allows states to compete for efficient regulatory mechanisms (Grace and Phillips, 2007); and B state-based regulation promotes regulatory innovation (see Baher, 2005, p. 390). …”

Regulatory competition and forbearance: Evidence from the life insurance industry

“…As discussed 3 Individual insurers, not the holding company or group, are required to submit annual accounting data to state insurance regulators. In addition, individual insurers are also subject to market conduct examinations, solvency examinations, and insolvency resolution by state regulators (Grace and Phillips, 2007). 4 Barber and Lyon (1996) note that the appropriateness of a particular book performance measure depends upon the research purpose.…”

Ontario Auto Insurance Reform: A Game of “Whack-a-Mole”

“…This article provides a summary and analysis of reforms enacted between 1990 and 2010 and examines the performance (in terms of loss costs and premiums) of the Ontario auto insurance system in light of these reforms. Our approach is similar to Grace, Klein and Tennyson (2013): we describe the short and long-term impacts -beneficial and detrimental -of regulatory change within a highly regulated jurisdiction and offer insights into the problems created by this approach to auto insurance reform.…”