Insurance Price Deregulation: The Illinois Experience

1 Day (1970)

2 Day (1970)

3 Kimball (1960)

4 Patterson (1927)

5 Mehr and Cammack (1980, p. 234)

6 Lilly (1976)

7 Grace and Skipper (1990)

8 Insurance Information Institute (1997, p. 38)

9 Kimball and Boyce (1958)

10 Lilly (1976)

11 Grace and Barth (1993, p. 8)

12 Day (1970)

13 Day (1970, p. 8)

14 Wandel (1935)

15 Day (1970)

16 Mehr and Cammack (1980, p. 236)

17 Day (1970, p. 20)

18 Day (1970)

19 Mertz (1965)

20 Insurance Information Institute (1997, p. 71)

21 http://www.hfmgv.org/histories/hf/henry.html

22 Mehr and Cammack (1980, p. 679)

23 Mehr and Cammack (1980, p. 680)

24 Morgan (1976)

25 It could be argued that contractors bidding on projects face similar uncertainty. However, in most cases their hourly labor and construction material costs are known and could be fixed prior to pricing the project. The only uncertainty is the number of hours of labor involved. This uncertainty is unique to the specific project and no social benefit would be gained by having contractors work together to set the project price.

26 Grace and Barth (1993)

27 Mehr and Cammack (1980, p. 681)

28 Mertz (1965, p. 9)

29 Grace and Barth (1993)

30 Mertz (1965)

31 California League of Independent Insurance Producers v. Aetna Casualty and Surety Co. 175 F. Supp. 857 (N.D. California, 1959)

32 New York (1969)

33 Over the next twenty years, ISO shifted to providing loss costs in all states to encourage more independent ratemaking.

34 At least one company, confused by the different format, used the loss costs as premiums. Not surprisingly, the loss ratios were quite high and the company soon caught their error.

35 Phil O'Connor (personal communication)

36 U. S. Department of Justice (1977, pages 31-34)

37 Harrington (1984), Tennyson (1991)

38 D'Arcy (1982), D'Arcy (1985), Grabowski, Viscusi and Evans (1989)

39 Long and Mehr (1981)

40 Illinois Department of Insurance (1977, 1979)

41 Witt (1977)

42 D'Arcy (1982) finds support for Peltzman's theory by examining profitability by line of business. Regulation reduced profitability for auto insurance, a line consumers would bring the greatest pressure to bear on the regulators. Conversely, regulation increased profitability for homeowners insurance, a line in which consumers would play a less forceful role and the industry could offset the losses in auto insurance.

43 In fact, Illinois had the lowest value at 1.33 and New Jersey had the highest value at 50.33.

44 States utilize a variety of methods for handling the residual market. The most common method is through an assigned risk plan, with those unable to obtain coverage in the voluntary market being assigned to insurers based on each insurer's voluntary market share. The insurer must then write the assigned risk for a set period, normally three years. Other states have a joint underwriting association (in which specified carriers write all residual market policies, but the losses are shared among all insurers), reinsurance facilities (in which insurers must write all applicants for insurance, but can select to reinsure selected drivers with the reinsurance plan, with losses from the reinsurance plan spread among all insurer in the state) or state plans that provide coverage for those uninsurable in the voluntary market.

45 In 1985, for example, the ratio of the residual market to the voluntary market in Massachusetts was .9781, in New Jersey was .7119 and in South Carolina was .3785. By 1993, the value had declined for Massachusetts to .1130 and for New Jersey to .0217, but in South Carolina the value had increased to .7118, the highest in the country.

46 Insurance Research Council (1999)

47 Prior studies on factors influencing uninsured motorist claims have yielded conflicting results about the effect of other variables. Ma and Schmit (2000) found that the percent of a state's population living in poverty (a variable highly correlated with urbanization), whether a state has a financial responsibility, compulsory insurance or no-fault law and the percent of the population residing in metropolitan areas all had a significant effect. The Insurance Research Council (1999) found that insurance laws had only a limited impact. Neither study considered the type of rate regulatory law in effect.

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