Deregulation, claims ratio, and consumer surplus: Evidence from China's auto insurance reform

Insurance rate deregulation is a pivotal element of financial system reforms. Exploiting China's commercial auto insurance reform as a quasi-natural experiment and utilizing urban panel data from 2011 to 2019, we employ a staggered difference-in-differences model to gauge the reform's impact on consumer welfare. We find that the insurance premium rate deregulation significantly increases the auto insurance claims ratio, thereby enhancing consumer welfare. This result holds after accounting for potential heterogeneity in treatment effects and undergoing thorough robustness checks. Further analysis reveals that the reform's effects are particularly pronounced in regions with higher administrative levels, population densities, and education levels. Notably, both the decrease in premium income and increase in claim payments are key contributors to the rise in the claims ratio. This dynamic is estimated to have generated an approximate welfare increase of 47.52 billion renminbi (6.88 billion USD), as quantified through consumer surplus. In summary, the study provides insights into the consumer welfare effects of insurance rate deregulation, and reveals an empirical and theoretical foundation for advancing market reforms in the insurance industry.