2022 1109 - AP - Regulatory Competition in the US Life Insurance Industry, Johnny Tang - 88p
Competition between jurisdictions is a central feature of many public policy problems.
I examine the consequences of such competition in the US life insurance industry, where states vie to attract insurers by setting lower capital requirements, but the costs of such actions are borne by consumers in other states.
I document empirical evidence of competition between state regulators and its effects on the supply of life insurance.
I then develop a quantitative model of the insurance market to evaluate the effects of this competition.
I find that competition leads regulators to set lower capital requirements, which increases default risks but also increases consumer surplus by lowering prices.
On net, these effects decrease regulators’ utility based on regulators’ revealed- reference objective functions.