Springer Nature is making SARS-CoV-2 and COVID-19 research free. View research | View latest news | Sign up for updates

Conduct effects of gradual entry liberalization in insurance

  • 27 Accesses

  • 2 Citations

Abstract

The effects of rate regulation on insurance have been profusely investigated in the empirical literature but less is known about the effects of entry liberalization.

We investigate the effects of an entry liberalization process on conduct of insurance firms under a rate regulation system. An explicit model of oligopolistic interaction is proposed and an application to the Portuguese auto-insurance market is reported.

The results show that coordination between insurance firms was only temporarily upset by a gradual liberalization on entry conditions, with firms resuming almost immediately a coordinated equilibrium.

This is a preview of subscription content, log in to check access.

References

  1. Barros, Pedro. 1993. “Price Liberalization and Market Power in Insurance.” Working-Paper 234-93, Universitat Autònoma de Barcelona (October).

  2. Baumol, William, John Panzar, and Robert Willig. 1982.Contestable Markets and the Theory of Industry Structure. New York: Hartcourt Brace Jovanovich.

  3. Borch, Karl. 1962. “Equilibrium in a Reinsurance Market.”Econometrica 30 (3): 424–444.

  4. Cummins, J. David, and Scott Harrington. 1987. “The Impact of Rate Regulation in the Property-Liability Insurance Markets: a Cross-Sectional Analysis of Individual Firm Loss Ratios.”The Geneva Papers on Risk and Insurance 12(42): 50–62.

  5. Doherty, Neil. 1981. “The Measurement of Output and Economies of Scale in Property-Liability Insurance.”Journal of Risk and Insurance. 48: 390–402.

  6. Finsinger, Jorg, and F. Schmid. 1994. “Prices, Distribution Channels and Regulatory Intervention in European Insurance Markets.”The Geneva Papers on Risk and Insurance 19 (70): 22–36.

  7. Fuller, W., and G. Battese. 1973.”Transformations for Estimation of Linear Models with Nested Error Structure.”Journal of the American Statistical Association 68: 626–632.

  8. Grabowski, Henry, W. Kip Viscusi, and William N. Evans. 1989. “Price and Availability Tradeoffs of Automobile Insurance Regulation.”The Journal of Risk and Insurance 56 (2): 275–299.

  9. Harrington, Scott. 1984. “The Impact of Rate Regulation on Prices and Underwriting Results in the Property-Liability Insurance Industry: A Survey.”Journal of Risk and Insurance 51: 577–623.

  10. Harrington, Scott. 1987. “A Note on the Impact of Auto-insurance Rate Regulation.”Review of Economics and Statistics 69: 166–170.

  11. Harrington, Scott. 1988. “Prices and Profits in the Liability Insurance Market.” InLiability: Perspectives and Policy, edited by R. Litan and C. Winston. Brookings Institution.

  12. Hsiao, Cheng. 1986.Analysis of Panel Data. Cambridge: Cambridge University Press.

  13. Ippolito, Richard. 1979. “The Effects of Price Regulation in the Automobile Insurance Industry.”Journal of Law and Economics 22: 55–89.

  14. Instituto de Seguros de Portugal. 1982–1988.Estatísticas da Actividade Seguradora — Elementos Estatísticos I. Lisbon, Portugal.

  15. Instituto de Seguros de Portugal. 1982–1988.Estatísticas da Actividade Seguradora — Elementos Estatisticos II. Lisbon, Portugal.

  16. Judge, George, William Griffiths, R. Carter Hill, Helmut Lutkepohl, and Tsoung-Chao Lee. 1985.The Theory and Practice of Econometrics, 2nd edition. New York: John Wiley and Sons.

  17. Pauly, Mark, Howard Kunreuther, and Paul Kleindorfer. 1986. “Regulation and Quality Competition in the U. S. Insurance Industry.” InThe Economics of Insurance Regulation, edited by Jorg Finsinger and Mark Pauly. London: Macmillan.

  18. Rogerson, William. 1982. “The Social Costs of Monopoly and Regulation: A Game Theoretic Analysis.”Bell Journal of Economics 13: 391–401.

  19. Stigler, George. 1971. “The Theory of Economic Regulation.”Bell Journal of Economic and Management Science 2: 3–21.

  20. White, Halbert. 1982. “Maximum Likelihood Estimation of Misspecified Models.”Econometrica 50: 1–26.

Download references

Author information

Additional information

I am thankful to Luís Cabrai, António Leite, José Mata, Vasco Santos, and the referees for useful suggestions. Financial support from an EC Human Capital Mobility Fellowship, grant ERBCHBGCT920147, and the hospitality of Universitat Autònoma de Barcelona are gratefully acknowledged. The usual disclaimer applies.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Barros, P.P. Conduct effects of gradual entry liberalization in insurance. J Regul Econ 8, 45–60 (1995). https://doi.org/10.1007/BF01066599

Download citation

Keywords

  • Regulation System
  • Liberalization Process
  • Public Finance
  • Industrial Organization
  • Empirical Literature