Insurance Law

I haven't seen the bill yet, but it looks like the Georgia House and Senate passed a bill that deregulated the Auto insurance market.  A novel modification to complete deregulation is that the mandatory minimum coverage is still subject to prior approval before offer of sale.  Additional coverages will be subject to market prices.  One of my colleagues and I testified (not in favor of a particular bill or for any lobbying group or company) about what the academic literature says about insurance regulation.  Casual readers will know that I favor competition, but I was surprised that the bill was passed.

The Georgia insurance commissioner is not happy.  He a republican and not a believer in free markets.  He is quoted in the article (which reads like an editorial with quotes) as saying

"The insurance industry wants to make the change because they want more profits,"  ... I think rates will go up and I think Georgia consumers will pay for it."

The automobile insurance industry is one of the most competitive industries in the United States. In Georgia the Herfindahl Index for auto is 963 (from my own calculation of NAIC data).  The Department of Justice's Horizontal Merger Guidelines would call this an  un-concentrated market. We don't regulate the price of food or drugs, in part, because we have numerous choices for these goods.  In Georgia there are over 100 auto insurance providers.

Why is insurance different?  Illinois has had free competition for 30-40 years and has not gone to the dogs.  Georgia is setting an example for the rest of the country.

The bill as it was explained to me still requires prior approval for the mandatory coverage, so if one purchases that coverage it is still subject to regulatory oversight.

The Brookings-AEI Joint - Center put together a book of studies on the Auto insurance industry in 2001.  By my count three states (NJ, MA, and GA) have been influenced by the set of papers. In particular:

• the paper by Prof. Jack Worral influenced New Jersey's deregulation legislation,
• the paper by Profs. Weiss, Regan and Tennyson influenced Massachusetts' regulatory efforts (especially the testimony of Prof. Tennyson before the Mass Insurance Department), and,
• finally, the paper on South Carolina demonstrating the effect of deregulation on a dysfunctional market by yours truly, and my colleagues here at GSU Profs. Bob Klein and Rich Phillips influenced the Georgia legislature.

Link: www.ajc.com.