Intra-Company Auto Insurance Underwriting Profits Under Alternative Forms of Rate Regulation

Intra-company underwriting results for auto insurers are tested to detect systematic profit differences between states attributable to rate regulation. Prior research has shown that regulatory stringency affects the mix of insurers within a state market, which can alter measures of state aggregate profits and distort the effects of regulatory policies on profits. This study looks at intra-company differences in profitability for those insurers that actually participate in each state market. These results do not support the hypothesis that strict rate regulation either systematically increases or decreases the profits for insurers that participate in those markets, although it may affect a company’s decision to participate in that market. While no systematic differences are noted based on regulatory structure, the results show that a few states have systematically higher or lower profit margins, and the effect of regulatory policies may be a contributing factor in these specific states.