REGULATORY LAG IN AUTOMOBILE INSURANCE

This article investigates whether regulatory lag affects the character of unit prices (inverse loss ratios) in regulated private passenger a utomobile insurance markets. The analysis is developed in the context of a simple model of a regulated insurance market. The model predicts that regulatory lag will increase the intertemporal dependence of unit prices in regulated markets. The model is estimated using data from a uto liability insurance markets in 35 states over the period 1975-1986 . The estimation results support the view that regulatory lag is signi ficant for most firms in most-regulated states.