The author would like to thank two anonymous referees, Patrick Brockett, Mark Browne, Martin Grace, Robert Hartwig, Andre Liebenberg, Norma Nielsen, Lars Powell, Puneet Prakash, Joan Schmit, Alex Tabarrok, and seminar participants at the 2008 American Risk and Insurance Association conference for helpful comments and suggestions.
The Cost of Duplicative Regulation: Evidence From Risk Retention Groups
Article first published online: 23 NOV 2011
© The Journal of Risk and Insurance, 2011
Journal of Risk and Insurance
Volume 79, Issue 1, pages 105–128, March 2012
How to Cite
Leverty, J. T. (2012), The Cost of Duplicative Regulation: Evidence From Risk Retention Groups. Journal of Risk and Insurance, 79: 105–128. doi: 10.1111/j.1539-6975.2011.01437.x
- Issue published online: 23 FEB 2012
- Article first published online: 23 NOV 2011
A vast majority of insurers are regulated by each state in which they conduct business; however, a small subset of specialized firms, risk retention groups (RRGs), are largely exempt from most aspects of duplicative regulation no matter how many states they operate. This article analyzes the differences between RRGs and standard insurers specializing in commercial liability insurance to determine the cost of duplicative regulation. The costs associated with multi-state regulation are significantly higher than those for single-entity regulation. These high regulatory compliance costs reduce the technical efficiency of firms, deter firms from operating in additional states, and increase the price of insurance.