Policy Documents

The Case for Underwriting Freedom: How Competitive Risk Analysis Promotes Fariness and Efficiency in Property/Casualty Insurance Markets

Robert Detlefsen, Ph.D. –
September 3, 2005

In many states, property insurance prices are artifi cially manipulated through government
regulation, ostensibly to make insurance more affordable and available to consumers.
However, regulation that curtails insurers’ freedom to set prices stifl es competition and
deprives consumers of the benefi ts that naturally flow from competition. The most obvious
form of insurance price regulation is state-administered “rating laws,” which require insurers
to seek the approval of state insurance departments whenever they wish to raise or lower
premiums. However, government-imposed underwriting restrictions – rules that curtail the
ability of insurers to assess and classify risk – also strongly affect the price that consumers pay
for insurance. Regulation that limits the ability of insurers to engage in risk assessment and
classifi cation has far-reaching implications for the entire insurance system.