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Many states have recently deregulated property-liability insurance rates and the contract terms and language of policy forms for coverage sold to medium and large businesses. This study outlines the compelling case for widespread deregulation of property-liability insurance rates and forms. Prior approval regulation of rates entails direct and indirect costs and serves no useful purpose in modern, competitively-structured insurance markets. As a result, the insurance-buying public will benefit significantly from deregulation.

Scott E. Harrington also shows that restrictions on insurer risk classification, which require lower-risk insurance buyers to subsidize higher-risk buyers, are counterproductive and should be avoided. In addition, regulators should approve rates for state-mandated residual markets that are high enough to avoid significant subsidies from buyers who obtain coverage in the voluntary market. Noting that further state deregulation of policy forms for coverage sold to medium and large businesses is clearly desirable, Harrington contends that if insurers must file policy forms for small businesses and personal insurance with regulators, the use of such forms should not require prior regulatory approval.

Scott E. Harrington is professor of insurance and finance and the Francis M. Hipp Distinguished Faculty Fellow in the College of Business Administration at the University of South Carolina.