Regulatory Competition in the U.S. Life Insurance Industry

Johnny Tang, March 7, 2024. This presentation examines the consequences of competition between jurisdictions in the U.S. life insurance industry. States vie to attract insurers by setting lower capital requirements, but the costs of such actions are borne by consumers in other states. The paper documents empirical evidence of competition between state regulators and its effects on the supply of life insurance. It then develops a quantitative model of the insurance market to evaluate the effects of this competition. Its main finding is that competition leads regulators to set lower capital requirements, which increases default risks but also increases consumer surplus by lowering prices. On net, these effects decrease regulators’ utility based on regulators’ revealed-preference objective functions.