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Regulatory examinations and life insurance development

Regulatory examinations and life insurance development Solvency and market conduct regulations play a crucial role in supporting life insurance development by boosting consumer confidence and securing a stable environment for insurers to write business. The regulation encapsulates not only the legal framework but also its enforcement. This study aims to focus on the latter and investigate the impact of solvency and market conduct examinations on life insurance development within a homogenous legal environment in the USA.Design/methodology/approachTo test the relationship between the regulatory examinations and life insurance development, this study uses annual data for 51 US states over the period 2013–2018 and uses fixed and random effects panel regressions controlling for the possible omitted variables bias and serial correlation. This study constructs two groups of indicators to measure the robustness and ability of regulators to prevent insolvencies and opportunistic market practices and estimate their effects on market development.FindingsThe results show that more stringent regulators with respect to solvency examinations deter life insurers from their markets and channel to those markets with lenient examiners, hurting the development of life insurance in the stringent states. Additionally, regulators boost consumer confidence by providing robust market conduct practices, which results in higher life insurance demand.Originality/valueThis study contributes to the debates about the pros and cons of the current state-led regulation in the USA and the general benefits/costs of regulation for insurance market development. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Regulation and Compliance Emerald Publishing

Regulatory examinations and life insurance development

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1358-1988
eISSN
1358-1988
DOI
10.1108/jfrc-09-2021-0077
Publisher site
See Article on Publisher Site

Abstract

Solvency and market conduct regulations play a crucial role in supporting life insurance development by boosting consumer confidence and securing a stable environment for insurers to write business. The regulation encapsulates not only the legal framework but also its enforcement. This study aims to focus on the latter and investigate the impact of solvency and market conduct examinations on life insurance development within a homogenous legal environment in the USA.Design/methodology/approachTo test the relationship between the regulatory examinations and life insurance development, this study uses annual data for 51 US states over the period 2013–2018 and uses fixed and random effects panel regressions controlling for the possible omitted variables bias and serial correlation. This study constructs two groups of indicators to measure the robustness and ability of regulators to prevent insolvencies and opportunistic market practices and estimate their effects on market development.FindingsThe results show that more stringent regulators with respect to solvency examinations deter life insurers from their markets and channel to those markets with lenient examiners, hurting the development of life insurance in the stringent states. Additionally, regulators boost consumer confidence by providing robust market conduct practices, which results in higher life insurance demand.Originality/valueThis study contributes to the debates about the pros and cons of the current state-led regulation in the USA and the general benefits/costs of regulation for insurance market development.

Journal

Journal of Financial Regulation and ComplianceEmerald Publishing

Published: Sep 26, 2022

Keywords: Solvency; Insurance regulation; Life insurance development; Market conduct; G22; G28

References