Presidential Address: Rate Suppression
探讨保险市场为何易受政治压力导致的费率抑制影响，分析保险公司退出缓慢的原因，并讨论政府强制保费安排对市场的负面效应。
This article considers why insurance markets may be especially vulnerable to regulatory of insurance prices in response to political pressure for lowering rates or limiting rate increases. analysis focuses on why exit by insurers will likely be too slow to deter significant rate suppression. first possibility considered is that valuable state-specific investments by insurers are subject to appropriation through rate without producing rapid exit. second and more speculative possibility is that rapid growth in claim costs may allow part of the market to be insured under government mandated premium arrangements that at least temporarily permit lower than market premiums (at least temporarily) without producing substantial incentive to exit. likely adverse effects of these policies on insurance markets are discussed. Rate suppression can be defined broadly as government of insurance rates below levels that would exist without price regulation. For some time now, the property-liability insurance trade press and other industry publications have contained many stories suggesting that regulation has suppressed auto insurance rates in a number of states. Attention has recently turned to rate in workers' compensation insurance and it often is suggested that rate in both lines has become chronic in some states (e.g., Kramer, 1991). This article considers why some insurance markets may be especially vulnerable to rate suppression. I assume throughout that significant increases in insurance costs produce strong political pressure for reducing rates or limiting rate increases.' What is less clear is how this pressure can produce * author is Professor of Insurance and Finance and Francis M. Hipp Distinguished Faculty Fellow at the College of Business Administration of the University of South Carolina. This article is an expanded version of his presidential address at the 1991 annual meeting of the American Risk and Insurance Association in San Diego, California on August 20, 1991. l Baumol (1991) discusses the technological causes of real cost increases in insurance markets. He notes: The insurance industry is plagued by persistently rising costs which force its rates to rise cumulatively to a degree that inevitably make that industry a perpetual target of suspicion (p. 154) .... Political intervention has characteristically taken the form of attempts to abolish the cost disease by fiat in effect, to declare cost increases illegal (p. 163). Cummins and Tennyson (1992) provide detailed discussion of cost increases in auto insurance. This content downloaded from 207.46.13.110 on Fri, 09 Dec 2016 05:45:56 UTC All use subject to http://about.jstor.org/terms 186 Journal of Risk and Insurance chronic rate suppression. Given the competitive structure of these markets, persistent rate should produce reductions in product quality or exit by insurers. Both possibilities should discourage rate suppression. If quality responses are constrained, the threat of widespread exit alone should give politicians and regulators considerable pause before persistently suppressing rates. As it stands, the evidence on exits is somewhat puzzling. While significant exit has occurred in some states (see below), it has not really been rapid or truly widespread in any state. It is possible that stories of rate are simply fiction, but this is hard to reconcile with adverse underwriting results and exits that have occurred. Another possibility that rates are suppressed, but only to levels that provide a fair rate of return is also difficult to reconcile with long-run equilibrium in a competitively structured industry. next section discusses the evolution and forms of rate and summarizes evidence of rate suppression. This is followed by brief discussion of why reductions in product quality are unlikely to prevent significant rate suppression. Two possible explanations of why rate also need not be deterred by the threat of immediate and widespread exit are then considered. I first discuss the possible role of appropriable quasi-rents that arise from state-specific investments involved in the production of insurance. I then consider the ability of government to establish or mandate cash flow insurance plans that is, pay-as-you-go insurance rather than fully funded coverage. likely adverse effects of these policies on insurance markets are discussed in both cases.