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Regulatory examinations and life insurance development

Author

Listed:
  • Bojan Srbinoski
  • Klime Poposki
  • Patricia Born
  • Karel Van Hulle

Abstract

Purpose - Solvency and market conduct regulations play a crucial role in supporting life insurance development by boosting consumer confidence and securing a stable environment for insurers to write business. The regulation encapsulates not only the legal framework but also its enforcement. This study aims to focus on the latter and investigate the impact of solvency and market conduct examinations on life insurance development within a homogenous legal environment in the USA. Design/methodology/approach - To test the relationship between the regulatory examinations and life insurance development, this study uses annual data for 51 US states over the period 2013–2018 and uses fixed and random effects panel regressions controlling for the possible omitted variables bias and serial correlation. This study constructs two groups of indicators to measure the robustness and ability of regulators to prevent insolvencies and opportunistic market practices and estimate their effects on market development. Findings - The results show that more stringent regulators with respect to solvency examinations deter life insurers from their markets and channel to those markets with lenient examiners, hurting the development of life insurance in the stringent states. Additionally, regulators boost consumer confidence by providing robust market conduct practices, which results in higher life insurance demand. Originality/value - This study contributes to the debates about the pros and cons of the current state-led regulation in the USA and the general benefits/costs of regulation for insurance market development.

Suggested Citation

  • Bojan Srbinoski & Klime Poposki & Patricia Born & Karel Van Hulle, 2022. "Regulatory examinations and life insurance development," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 30(5), pages 525-552, March.
    • Handle: RePEc:eme:jfrcpp:jfrc-09-2021-0077
    DOI: 10.1108/JFRC-09-2021-0077
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    Citations

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    Cited by:

    1. Preethi Vijayagopal & Bhawana Jain & Shyam Ayinippully Viswanathan, 2024. "Regulations and Fintech: A Comparative Study of the Developed and Developing Countries," JRFM, MDPI, vol. 17(8), pages 1-23, July.

    More about this item

    Keywords

    Solvency; Insurance regulation; Life insurance development; Market conduct; G22; G28;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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