Multi-state regulations are driving up the price of insurance coverage, according to research

Commercial insurance rates

Commercial insurance ratesResearch suggests that regulations may be causing insurance rate hikes

Multi-state regulations are common throughout the insurance industry. Insurance companies are forced to comply with these regulations no matter where they may be in the U.S. Regulators often impose these directives as a way to ensure that companies are not taking advantage of consumers by exploiting regulatory gaps. These expansive regulations are a double-edged sword, however, as they require a significant and ongoing financial investment from each state that adopts them. Research from the University of Iowa suggests that these regulations may be behind the growing prices of commercial insurance rates.

Insurers face steep costs in complying with expansive regulations

University of Iowa professor Ty Leverty claims that the expenses associated with enacting, maintaining, and enforcing these multi-state insurance regulations is causing insurance companies to increase the premiums on commercial coverage. Many companies have had to make drastic changes in order to comply with new regulations that span state boundaries. This change is often expensive and is usually linked to financial loss for the companies making them. As such, insurers have begun looking to recover these losses by raising rates on coverage.

Consumers paying more for coverage as companies attempt to recover losses

Leverty’s research suggests that consumers pay 31% more for commercial liability insurance policies from companies that comply with multi-state regulations than those that do not. Leverty found that multi-state regulations increase compliance costs by approximately 26%, an amount sufficient enough to justify rate hikes for insurers. The research suggests that part of this increased cost is tied to the fact that insurers must answer to a multitude of regulatory authorities, as opposed to a single group.

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Regulations are popular as a way to cut down exploitation, but may not be efficient

Multi-state regulations are popular because they cut down on redundancy. These regulations are often promoted as a way for insurance companies to save money, but Leverty’s research shows that this may not be the case. The insurance industry has long battled with costly and somewhat troublesome regulations, often citing cost as a reason for regulators to make an effort to abolish redundancy and inefficiency.

Professor Leverty’s research, “The Cost of Duplicative Regulation: Evidence From Risk Retention Groups,” is available online here.

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