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Rate Regulation, Safety Incentives, and Loss Growth in Workers' Compensation Insurance

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  • Harrington, Scott E
  • Danzon, Patricia M

Abstract

We analyze the relationship between insurance rate regulation, inflationary cost surges, and incentives for loss control using state-level data on workers' compensation insurance for 24 states during 1984-90. Regulators often responded to rapid loss growth during this period by denying rate increases or approving increases that were less than initially requested by insurers. We test whether rate suppression increased loss growth by distorting incentives for loss control. Our regressions indicate a positive and statistically reliable relationship between loss growth and lagged measures of regulatory price constraints, suggesting that rate regulation increased the frequency and/or severity of employee injuries. Copyright 2000 by University of Chicago Press.

Suggested Citation

  • Harrington, Scott E & Danzon, Patricia M, 2000. "Rate Regulation, Safety Incentives, and Loss Growth in Workers' Compensation Insurance," The Journal of Business, University of Chicago Press, vol. 73(4), pages 569-595, October.
    • Handle: RePEc:ucp:jnlbus:v:73:y:2000:i:4:p:569-95
    DOI: 10.1086/209655
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    Cited by:

    1. Sharon Tennyson, 2007. "Efficiency Consequences of Rate Regulation in Insurance Markets," NFI Policy Briefs 2007-PB-03, Indiana State University, Scott College of Business, Networks Financial Institute.
    2. Dionne, Georges & Harrington, Scott, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    3. Lorilee A. Medders & Charles M. Nyce & J. Bradley Karl, 2014. "Market Implications of Public Policy Interventions: The Case of Florida's Property Insurance Market," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 17(2), pages 183-214, September.
    4. Samuel K. ALLEN, 2015. "Struggle for Regulatory Power between States and the US Federal Government: The Case of Workers’ Compensation Insurance 1930-2000," Journal of Economics and Political Economy, KSP Journals, vol. 2(3), pages 351-373, September.
    5. Sharon Tennyson, 2010. "Incentive Effects of Community Rating in Insurance Markets: Evidence from Massachusetts Automobile Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 35(1), pages 19-46, June.
    6. Mary A. Weiss & Sharon Tennyson & Laureen Regan, 2010. "The Effects of Regulated Premium Subsidies on Insurance Costs: An Empirical Analysis of Automobile Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(3), pages 597-624, September.

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