Price and Availability Tradeoffs of Automobile Insurance Regulation

Early analyses of automobile insurance regulation and deregulation efforts have yielded mixed results, in part because of the small number of completed deregulation experiments. This analysis focuses on a 30-state sample from 1974 through 1981 and on the experience in 11 deregulated states. Overall, regulation decreases the unit price (i. e. , inverse loss ratio), but the effect is disproportionately concentrated in a small number of heavily regulated states. For these states, insurance regulation increased the size of the involuntary market by an average of 17 percent. Substantial subsidies to drivers in the involuntary market where found, possibly as great as 292 per year in Massachusetts. The states that undertook deregulation over the past two decades experienced reduced unit prices and decreases in the size of the involuntary market.