The impact of state taxes on self-insurance

This paper assesses whether insurers' state taxes reduce purchases of prope rty-casualty coverage. Tests are conducted using state aggregates of insure r-level data from publicly available, annual accounting reports for 1993-19 95. A positive relation between self-insurance and state taxes is detected, consistent with consumers opting to self-insure rather than bear the incid ence of higher insurer taxes. As expected, tax effects vary with the elasti city of demand. When demand is largely inelastic, e,g., automobile liabilit y coverage, taxes do not affect self-insurance. (C) 2000 Elsevier Science B .V. All rights reserved. JEL classification: H22; H25; G22; D12.