Washington — State regulation of the $120 Billion annual auto insurance market "does not significantly reduce long-run prices for consumers," according to conference findings by the American Enterprise Institute-Brookings Institution Joint Center for Regulatory Studies.

In fact, a new report concludes, auto insurance regulation "generally reduces availability of coverage and increases price volatility." Additionally, the current regulatory system "subsidizes high-cost drivers [those likely to have the most accidents], sending adverse incentive signals and increasing accident costs."

According to the report, written by J. David Cummins, professor of insurance and risk management at the Wharton School at the University of Pennsylvania, if auto insurance rates were not regulated, "competitive market equilibrium will result in insurance prices that reflect an unbiased estimate of the expected costs of motor vehicle accidents as well as an appropriate profit for insurers."

Currently, virtually all states regulate auto insurance rates, and 31 states require insurance companies to obtain prior approval of rates.

"There is no evidence that prices or profits in states that rely on markets to set rates are excessive or that insurers behave collectively," the AEI-Brookings Joint Center study concludes, summarizing reports presented at a recent conference.

The study also finds that many auto insurers have stopped writing policies in states that heavily regulate rates, such as Massachusetts and New Jersey, while the number of insurers doubled when auto insurance was deregulated in South Carolina.

"Regulation also increases cash flow volatility for insurers, raising the cost of capital," the study states. "In essence, regulation creates material economic inefficiencies in order to provide subsidies to the drivers who impose the highest costs on state automobile insurance systems."

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Read the complete text of this conference report, "Property-Liability Insurance Price Deregulation: The Last Bastion?"