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Impacts of Deregulation on Property and Casualty Insurers' Pricing and Risk Taking: Empirical Evidence in Japan

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  • YASUDA, Yukihiro
  • 安田, 行宏

Abstract

The purpose of this paper is to examine empirically the effects of rate-deregulation on Japanese Property and Casualty (P/C) insurers' pricing and risk-taking behaviors. As long as we know, there is little empirical evidence of the determinants of risk-taking at P/C insurance companies in Japan. Applying the basic ideas from the field of banking, we investigate the factors affecting risk-taking at P/C insurance companies. We find that the price setting at Japanese P/C insurers are decreased after the deregulation. In contrast, we find the risk levels of Japanese P/C insurers are generally increased after the rate-deregulation. However, franchise value that is measured by simple Q contributes adversely to P/C insurer risk-taking only before the deregulation. Lastly, we find that P/C insurers that belong to keiretsu groups have reduced the insurer rates but increased risk taking after the deregulation. In this sense, the impacts of deregulation are higher for P/C insurance companies that belong to the Keiretsu groups.

Suggested Citation

  • YASUDA, Yukihiro & 安田, 行宏, 2016. "Impacts of Deregulation on Property and Casualty Insurers' Pricing and Risk Taking: Empirical Evidence in Japan," Working Paper Series G-1-10, Hitotsubashi University Center for Financial Research.
    • Handle: RePEc:hit:hcfrwp:g-1-10
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    References listed on IDEAS

    as
    1. Nat Pope & Yu-Luen Ma, 2005. "Market Deregulation and Insurer Pricing Strategies: The Japanese Experience," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 30(2), pages 312-326, April.
    2. Shirasu Yoko & Komoribayashi Katsuya & Moridaira Soichiro, 2009. "Estimation of Capital Beta and Cost of Capital: A Focus on Japanese Property-liability Insurance Companies and Lines of Business," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 3(2), pages 1-18, April.
    3. Paul L. Joskow, 1973. "Cartels, Competition and Regulation in the Property-Liability Insurance Industry," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 375-427, Autumn.
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    More about this item

    Keywords

    Japanese P/C insurers; Rate-deregulation; Risk Taking; Franchise Value; Keiretsu affliation.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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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