In this paper we test whether the past or future labor market choices of insurance commissioners provide incentives for regulators in states with price regulation to either favor or oppose the industry by allowing prices that differ significantly from what would otherwise be the competitive market outcome. Using biographical data on insurance regulators, economic and state specific market structure and regulatory variables, and state premium and loss data on the personal automobile insurance market, we find no evidence consumers in prior approval states paid significantly different “unit prices” for insurance than consumers in states that allow competitive market forces to determine equilibrium prices during the time period 1985–2002. We do, however, find evidence regulators who obtained the position of insurance commissioner by popular election and those who seek higher elective office following their tenure as insurance commissioner allow higher overall “unit prices” relative to competitive market states. The “unit price” of insurance in regulated states is not statistically different from the competitive market outcome for regulators that make lateral moves back into state government and it is mildly higher for regulators who enter the insurance industry following their tenure. Finally, we find some evidence regulators who describe themselves as consumer advocates are successful reducing the price of insurance in favor of consumers in regulated markets. Overall the results are consistent with the existence of asymmetric information in the regulatory process that agents use to enhance their career aspirations.

This paper examines the effect of rate regulation on the management of the property‐liability insurer loss reserve. The political cost hypothesis predicts that managers make accounting choices to reduce wealth transfers resulting from the regulatory process. Managers may under‐state reserves to justify lower rates to regulators. Alternatively, managers may have an incentive to report loss inflating discretionary reserves to reduce the cost of regulatory rate suppression. We find insurers over‐state reserves in the presence of stringent rate regulation. Investigating the impact along the conditional reserve error distribution, we discover that a majority of the response occurs from under‐reserving firms under‐reserving less because of stringent rate regulation.

This paper investigates whether elections delay regulatory action against failing financial institutions by exploiting the cross-sectional and time-series heterogeneity in the exogenous electoral cycles of US insurance regulators and governors. We find causal evidence that regulators delay interventions before elections. The extent of the delay is larger for elected regulators than regulators appointed by the governor. Interventions by appointed regulators are less likely before competitive gubernatorial elections. Regulatory governance mechanisms that constrain the discretion of regulators reduce the delays of appointed regulators but not elected. Finally, we find evidence that suggests electoral delays increase the ultimate costs of failure.

We empirically examine two methods for measuring output in property-liability insurer efficiency studies: the value-added approach and the “flow” (or financial intermediation) approach. The approaches are not mutually consistent. The value-added approach is closely related to traditional measures of firm performance, but the flow approach is not. In addition, efficient value-added approach firms are less likely to go insolvent, while firms characterized as efficient by the flow approach are generally more likely to fail. We also find that the theoretical concern regarding the value-added approach’s use of losses as a measure of output is not validated empirically.