The Unintended Effects of Rate Regulation Done the Wrong Way

Rate regulation can have unintended negative effects on the affordability, availability, and quality of insurance. All evidence continues to show that the answer to insurance market problems is a system that promotes healthy competition with strong consumer safeguards.

"Thus, in the long run, rate regulation does not significantly reduce prices for consumers. However, it generally reduces availability of coverage, increases price volatility, and reduces
the quality and variety of services available to consumers."
- Property-Liability Insurance Price Deregulation: The Last Bastion? J. David Cummins, 2001

"There is little or no evidence that prior approval on average has a material effect on average rates for any given level of claims costs. This finding is consistent with an inability of rate regulation to reduce average rates materially and persistently...without significantly reducing product quality or ultimately causing widespread exit by insurers."
- Effects of Prior Approval Rate Regulation of Auto Insurance, Scott E. Harrington, 2001

"A review of six states (Illinois, New Jersey, California, Massachusetts, South Carolina, and Texas) reveals that competitive pricing for all property-liability insurance produces positive market outcomes and that the unintended and
adverse consequences of prior approval are real...NCOIL and NAIC should adopt an unequivocal policy of favoring price competition over prior approval."
- Modernizing Insurance Rate Regulation, Philip R. O’Connor and Eugene P. Esposito, 2001

"Prior approval regulation entails potentially large direct and indirect costs...Those costs are unnecessary and counterproductive. Deregulation of voluntary market rates would eliminate those costs, thereby producing efficiency gains and benefiting consumers."
- Insurance Deregulation and the Public Interest, Scott E. Harrington, 2000

"In essence, regulation generally creates material economic inefficiencies, such as consumer welfare loss due to limited choice, insurance availability problems, reduced product quality, and higher than expected insolvency rates...In the long run, price regulation does not result in lower prices for consumers, but it can create serious economic inefficiencies that destabilize insurance markets and ultimately increase the price of insurance."
- Property-Liability Insurance Price Deregulation: The Last Bastion? J. David Cummins, 2001

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