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Deregulating Property-Casualty Insurance Pricing: The Case of Workers' Compensation

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  • Barkume, Anthony J
  • Ruser, John W

Abstract

Property and casualty lines of insurance have traditionally been subject to more regulatory price control than most goods in the U.S. economy. However, beginning in the 1970s, some states began to deregulate these lines of insurance, either dropping mandatory pricing in concert by means of rating bureaus or, additionally, dropping regulatory prior approval of premiums. This paper assesses the impact of rate deregulation in workers' compensation insurance. Besides examining the impact of deregulation on price, we examine effects on injury rates, as rate regulation may have reduced incentives for workplace safety by restricting price differences across risk classes. We find that eliminating both rating bureau pricing and prior approval reduced long-run premiums by 13.7 percent and reduced injury rates at most by 8.2 percent. In contrast, eliminating only rating bureau pricing had small effects. Copyright 2001 by the University of Chicago.

Suggested Citation

  • Barkume, Anthony J & Ruser, John W, 2001. "Deregulating Property-Casualty Insurance Pricing: The Case of Workers' Compensation," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 37-63, April.
    • Handle: RePEc:ucp:jlawec:v:44:y:2001:i:1:p:37-63
    DOI: 10.1086/320272
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    References listed on IDEAS

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    1. Ruser, John W, 1991. "Workers' Compensation and Occupational Injuries and Illnesses," Journal of Labor Economics, University of Chicago Press, vol. 9(4), pages 325-350, October.
    2. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    3. W. Kip Viscusi, 1979. "The Impact of Occupational Safety and Health Regulation," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 117-140, Spring.
    4. Paul L. Joskow, 1973. "Cartels, Competition and Regulation in the Property-Liability Insurance Industry," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 375-427, Autumn.
    5. Winston, Clifford, 1993. "Economic Deregulation: Days of Reckoning for Microeconomists," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1263-1289, September.
    6. Carroll, Anne & Kaestner, Robert, 1995. "The Relationship between Regulation and Prices in the Workers' Compensation Insurance Market," Journal of Regulatory Economics, Springer, vol. 8(2), pages 149-166, September.
    7. H. Allan Hunt & Alan B. Krueger & John F. Burton Jr., 1988. "The Impact of Open competition in Michigan on the Employers' costs of Workers' Compensation," Book chapters authored by Upjohn Institute researchers, in: Workers' Compensation Insurance Pricing: Current Programs and Proposed Reform, pages 109-144, W.E. Upjohn Institute for Employment Research.
    8. Silvana Pozzebon, 1994. "Medical Cost Containment under Workers' Compensation," ILR Review, Cornell University, ILR School, vol. 48(1), pages 153-167, October.
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    Cited by:

    1. Danzon, Patricia M & Harrington, Scott E, 2001. "Worker's Compensation Rate Regulation: How Price Controls Increase Costs," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 1-36, April.
    2. Nicole Nestoriak & John Ruser, 2010. "Emerging Labor Market Trends and Workplace Safety and Health," NBER Chapters, in: Labor in the New Economy, pages 425-453, National Bureau of Economic Research, Inc.
    3. Sharon Tennyson, 2007. "Efficiency Consequences of Rate Regulation in Insurance Markets," NFI Policy Briefs 2007-PB-03, Indiana State University, Scott College of Business, Networks Financial Institute.

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