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Market Reaction to Potential Federal Regulation in the Insurance Industry

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  • Stephen G. Fier
  • Andre P. Liebenberg

Abstract

The effect of federal insurance regulation has been a perennial topic of debate. Proponents have argued that federal regulation would result in a variety of benefits, including greater product innovation, increased speed-to-market, reduction of regulatory costs, and additional cost efficiencies. However, opponents have argued that federal regulation could prove harmful to both insurance companies and policyholders due to federal regulators’ inability to meet the diverse needs of policyholders across the country, difficulties with the operation of state guaranty funds, and potential “stickiness” of federal regulation. We investigate investor perceptions of the net effect of potential federal regulation in the U.S. insurance industry by studying the market response to the passage of the Dodd-Frank Act. Our results suggest that the market viewed the passage of the Act as a negative event for the U.S. insurance industry and that investor responses were primarily driven by increased regulatory uncertainty.

Suggested Citation

  • Stephen G. Fier & Andre P. Liebenberg, 2013. "Market Reaction to Potential Federal Regulation in the Insurance Industry," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 36(1), pages 1-34.
    • Handle: RePEc:wri:journl:v:36:y:2013:i:1:p:1-34
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    File URL: http://www.insuranceissues.org/PDFs/361FL.pdf
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    Cited by:

    1. Sorokina, Nonna & Thornton, John H., 2016. "Reactions of equity markets to recent financial reforms," Journal of Economics and Business, Elsevier, vol. 87(C), pages 50-69.
    2. Andriosopoulos, Kostas & Chan, Ka Kei & Dontis-Charitos, Panagiotis & Staikouras, Sotiris K., 2017. "Wealth and risk implications of the Dodd-Frank Act on the U.S. financial intermediaries," Journal of Financial Stability, Elsevier, vol. 33(C), pages 366-379.
    3. Garner, Steve A. & Hutchison, Paul D. & Conover, Teresa L., 2017. "Economic consequences of SEC regulation pertaining to financial expert definition," Advances in accounting, Elsevier, vol. 36(C), pages 75-86.

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