An Empirical Assessment of Regulatory Lag in Insurance Rate Filings

In this article, we evaluate factors that help to explain an important source of variation in insurers' rate filing experiences across states and over time for personal automobile insurance. Using a new source of data from personal auto insurance rate filings for all U.S. insurers, we examine factors associated with regulatory lag. The timeliness of the disposition of insurers' rate filings is important, as significant delays can undermine the usefulness of the actuarial analysis required for justifying rate changes and may result in rate inadequacy pending the approval of rate increases. While there is a considerable literature on the effect of rate regulation regimes on insurance market outcomes, this is the first article that evaluates factors associated with regulatory lag. We use a principal components approach to explore the relative influence of various factors on the timeliness of filing approval. These factors are associated with (1) industry interest, resources, and influence, (2) demand conditions, complexity, and saliency, (3) the goals of political elites, and (4) the goals and resources of regulators as important drivers of insurers' rate filing experience. We find that state rate filing statutes account for some of the variation in regulatory lag and identify other significant factors that explain the variation in the timeliness of rate approvals across states and over time.