AN ANALYSIS OF PROPERTY-CASUALTY INSURERS: Control Variables

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With one exception, the signs of the other regression coefficient estimates are as predicted. The coefficients on RATEREG and RESTRICT are negative, consistent with both prices being suppressed and profits being underreported in states with more restrictive product sales regulation. The coefficient on NOFAULT is negative, consistent with prior studies indicating lower prices in states with no-fault automotive insurance. INSPOP’s coefficient is negative, consistent with prices falling in the presence of increased competition. The coefficient on DIRWRITE also is negative, confirming prior findings that insurers who directly sell their policies offer lower prices. The coefficient on SIZE also is negative, suggesting larger insurers offer lower prices. CAPITAL’s coefficient is positive, consistent with less capitalized firms having to accept lower prices in response to buyers’ concerns about their insolvency.

The sole control variable with the wrong sign is PORTRISK. Consistent with Sommer (1996), we anticipated insurers with riskier investments would be forced to lower the price of their insurance in response to buyers’ concerns about their insolvency. However, consistent with the positive correlation coefficient between PRICE and PORTRISK, the regression coefficient on PORTRISK is positive. Differences in Sommer (1996) and our measures of portfolio risk may explain the different results.16 However, this control does not appear to affect the paper’s inferences. Quantitative results are almost identical when the regression is reestimated, excluding PORTRISK from the explanatory variables. payday loans no checking account

The regression coefficient estimates for the lines of business are not presented in Table 3, and we offered no predictions concerning their signs. However, the coefficients on the accident and health, reinsurance, and worker’s compensation lines are negative and significant at conventional levels, suggesting that markups are smaller in these lines. The coefficients on the credit and surety, liability and miscellaneous lines are positive and significant, implying markups are larger in these lines.