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Dynamic Pricing Regulation and Welfare in Insurance Markets

Author

Listed:
  • Naoki Aizawa
  • Ami Ko

Abstract

While the traditional role of insurers is to provide protection against individuals’ idiosyncratic risks, insurers themselves face substantial uncertainties due to aggregate shocks. To prevent insurers from passing these aggregate risks onto consumers, governments have increasingly adopted dynamic pricing regulations, which limit insurers’ ability to change premiums over time. We evaluate dynamic pricing regulation using an equilibrium model of the U.S. long-term care insurance market, featuring insurers’ lack of commitment and endogenous market structures. We find that stricter dynamic pricing regulation has a limited impact on improving consumer welfare, while it reduces insurer profits and increases market concentration.

Suggested Citation

  • Naoki Aizawa & Ami Ko, 2023. "Dynamic Pricing Regulation and Welfare in Insurance Markets," NBER Working Papers 30952, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30952
    Note: AG EH IO PE
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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