Insurance Rate Regulation, Management of the Loss Reserve and Pricing
Insurance pricing is subject to stricter regulation in some states than others. This cross-sectional variation, coupled with the occurrence of staggered deregulation in several states, enables a powerful test of the political cost hypothesis that managers manipulate accruals to mitigate adverse effe...
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| Veröffentlicht in: | The Accounting review 2023-10, Vol.98 (6), p.407-434 |
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| container_title | The Accounting review |
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| creator | Narayanamoorthy, Gans Page, John Song, Bohan |
| description | Insurance pricing is subject to stricter regulation in some states than others. This cross-sectional variation, coupled with the occurrence of staggered deregulation in several states, enables a powerful test of the political cost hypothesis that managers manipulate accruals to mitigate adverse effects of rate regulation. We show that insurers understate their loss reserve accruals in more regulated regimes, a finding that contrasts with most prior studies documenting expense-increasing accruals in regulatory pricing settings like utilities. We theorize and find evidence that regulator-enabled cartel-like collective rate making leads to premiums being higher than the competitive level. Our results are consistent with accounting manipulation being used to justify deviating from these high rates and showcase a role for accounting in cartel enforcement.
JEL Classifications: M41; G18; G22; G32. |
| doi_str_mv | 10.2308/TAR-2020-0637 |
| format | Article |
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| fulltext | fulltext |
| identifier | ISSN: 0001-4826 |
| ispartof | The Accounting review, 2023-10, Vol.98 (6), p.407-434 |
| issn | 0001-4826 1558-7967 |
| language | eng |
| recordid | cdi_proquest_journals_2889391928 |
| source | PAIS Index; Business Source Complete |
| subjects | Accruals Deregulation Earnings management Enforcement Insurance Insurance companies Insurance premiums Insurance rates Loss reserves Manipulation Premiums Pricing policies Regulation Side effects |
| title | Insurance Rate Regulation, Management of the Loss Reserve and Pricing |
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