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Illinois Considers Slaughtering the Golden Goose of Competition

Popular Media How it is that Illinois, a jurisdiction not typically associated with a strong commitment to free-market principles, came to be the first state in the . . .

How it is that Illinois, a jurisdiction not typically associated with a strong commitment to free-market principles, came to be the first state in the nation to allow its insurance rates to be regulated entirely by open competition is something of an accident of history.

Read the full piece here.

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Financial Regulation & Corporate Governance

Association of Past and Future Paid Medical Malpractice Claims

Scholarship Abstract Importance  Many physicians believe that most medical malpractice claims are random events. This study assessed the association of prior paid claims (including a single prior . . .

Abstract

Importance  Many physicians believe that most medical malpractice claims are random events. This study assessed the association of prior paid claims (including a single prior claim) with future paid claims; whether public disclosure of prior paid claims affects future paid claims; and whether the association of prior and future paid claims decayed over time.

Objective  To examine the association of 1 or more prior paid medical malpractice claims with future paid claims.

Design, Setting, and Participants  This study assessed the association between prior paid claims (including a single prior claim) with future claims; whether public disclosure of prior claims affects future paid claims; and whether the association of prior and future paid claims decayed over time. This retrospective case-control study included all 881,876 licensed physicians in the US. All data analysis took place between July, 2018 and January, 2023.

Exposure  Paid medical malpractice claims.

Main Outcome and Measures  Association between a prior paid medical malpractice claim and likelihood of a paid claim in a future period, compared with simulated results expected if paid claims are random events. Using the same outcomes, we also assessed whether public disclosure of paid claims affects future paid claim rates.

Results  This study included all 881,876 physicians licensed to practice in the US at the time of the study. Overall, 3.3% of the 841,?961 physicians with 0 paid claims in the prior period had 1 or more claims in the future period vs 12.4% of the 34?,512 physicians with 1 paid claim in the prior period; 22.4% of the 4,189 physicians with 2 paid claims in the prior period; and 37% of the 1,214 physicians with 3 paid claims in the prior period. The association between prior claims and future claims was similar for high-medical-malpractice-risk and lower-risk specialties; 1 prior-period claim was associated with a 3.1 times higher likelihood of a future-period claim for high-risk specialties (95% CI, 2.8-3.4) vs a 4.2 times higher likelihood for lower-risk specialties (95% CI, 3.8-4.6). The predictive power of a prior paid claim for future claims declined gradually as the time since the prior claim increased, for prior or future periods up to 10 years. Public disclosure did not affect the association between prior and future paid claims.

Conclusions and Relevance  In this study of paid medical malpractice claims for all US physicians, a single prior paid claim was associated with substantial, long-lived higher future claim risk, independent of whether a physician was practicing in a high- or low-risk specialty, or whether a state publicly disclosed paid claims. Timely, noncoercive intervention, including education, has the potential to reduce future claims.

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Financial Regulation & Corporate Governance

R.J. Lehmann on the Problem with Gun-Insurance Mandates

Presentations & Interviews ICLE Editor-in-Chief R.J. Lehmann joined The Reload podcast to discuss New Jersey’s new gun-carry insurance mandate and San Jose, California’s gun ownership insurance requirement. He . . .

ICLE Editor-in-Chief R.J. Lehmann joined The Reload podcast to discuss New Jersey’s new gun-carry insurance mandate and San Jose, California’s gun ownership insurance requirement. He said the requirements, which are the first of their kind, won’t accomplish the goal lawmakers have claimed. Namely, insurance companies can’t provide coverage for criminal acts. That basically leaves damage caused by accidental shootings as the only real option for coverage.

And even accidental coverage is more limited than most people realize. For instance, homeowners’ insurance–which San Jose now claims qualifies under its mandate–will cover accidental shootings, but only for damages done to third parties. That means any harm caused to the homeowner or family members living in the home wouldn’t be covered.

Lehmann said New Jersey’s requirement is even more problematic because it appears to be trying to require insurance against deliberate, and potentially criminal, acts. He said that’s not something any company offers nor is it a policy lawmakers could realistically force companies to offer. It also goes directly against the state’s complaints about “concealed carry insurance,” which are often not actual insurance policies but lawyer co-ops or group retainer plans.

Beyond the practical problems with the mandates, Lehmann said they also face an uphill battle in the courts. He explains why founding-era surety laws are a bad analogue for these modern requirements and why they are unlikely to survive the Bruen test in the long run.

Video of the appearance is embedded below.

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Financial Regulation & Corporate Governance

R.J. Lehmann Joins On Point for Discussion of Liability Insurance for Guns

Presentations & Interviews ICLE Editor-in-Chief R.J. Lehmann joined On Point, a daily discussion program produced by WBUR radio in Boston, for a discussion of  the nation’s first gun-insurance . . .

ICLE Editor-in-Chief R.J. Lehmann joined On Point, a daily discussion program produced by WBUR radio in Boston, for a discussion of  the nation’s first gun-insurance mandate, which took effect this year in San Jose, California. Gun owners in the city are required to have liability insurance or they could be fined a minimum of $250. But can insurance actually help curb gun violence?

“Insurance in and of itself is never going to cover the kinds of violent events that people imagine it would because insurance can’t cover things that you do on purpose,” R.J. Lehmann says.

Guests

Audio of the full episode is embedded below.

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Financial Regulation & Corporate Governance

Has Sarbanes-Oxley Made Insurance Riskier?

Popular Media The Sarbanes-Oxley Act of 2002 (SOX)—named for its chief sponsors, former Sen. Paul Sarbanes (D–Md.) and former Rep. Mike Oxley (R–Ohio)—was intended to restore trust . . .

The Sarbanes-Oxley Act of 2002 (SOX)—named for its chief sponsors, former Sen. Paul Sarbanes (D–Md.) and former Rep. Mike Oxley (R–Ohio)—was intended to restore trust in the transparency of publicly traded companies after the collapses of WorldCom and Enron Corp. revealed that their auditors had certified financial reports that overstated the firms’ assets and massively understated their liabilities.

But, of course, “transparency” isn’t quite the same thing as prudential safety and soundness. In the insurance space, more specifically, transparency doesn’t necessarily equal solvency.

Read the full piece here.

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Financial Regulation & Corporate Governance

Nation’s First Gun-Insurance Mandates Take Effect. Will They Hold up in Court?

Popular Media As the calendar flips to 2023, among the scores of new laws taking effect are a pair of legislative mandates that would, for the first . . .

As the calendar flips to 2023, among the scores of new laws taking effect are a pair of legislative mandates that would, for the first time anywhere in the country, require firearms owners to obtain and maintain liability insurance. What remains to be seen, however, is whether either measure will survive Second Amendment challenges, particularly given the standard handed by the U.S. Supreme Court in its June 2022 New York State Rifle & Pistol Association Inc. v. Bruen decision.

Read the full piece here.

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Financial Regulation & Corporate Governance

Administrative Browbeating and Insurance Markets

Scholarship Abstract Some state insurance regulators have been using their regulatory muscle to coerce insurers into furthering their political ends. They have protected favored but harmful . . .

Abstract

Some state insurance regulators have been using their regulatory muscle to coerce insurers into furthering their political ends. They have protected favored but harmful commercial activity and have strangled legal but disfavored individual conduct.

In the process, those regulators have disabled the benefits that a properly functioning insurance market can provide. They have hampered individuals’ ability to engage in desirable activities, like home ownership, that would otherwise be too risky given their incomes; they have made socially desirable but not risk-free activities, like responsible firearm ownership, less safe; and they have deprived the market of data on safety and risks. Such use of government power to abuse an “outgroup” for the benefit of the “ingroup” can also have devastating effects on social stability.

This paper analyzes the situation through two cases and suggests solutions that preserve near-plenary state control over insurance under the McCarran-Ferguson Act while limiting state regulators’ ability to abuse this special federal-state arrangement.

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Financial Regulation & Corporate Governance

Efficient Liability Law When Parties Genuinely Disagree

Scholarship Abstract This article compares the classic liability rules, negligence and strict liability, under the hypothesis that injurers and victims formulate subjective beliefs about the probabilities . . .

Abstract

This article compares the classic liability rules, negligence and strict liability, under the hypothesis that injurers and victims formulate subjective beliefs about the probabilities of harm. Parties may reasonably disagree in their assessment of the precautionary measures available: a measure regarded as safe by one party may be regarded as not safe by the other. By relying on the notions of Pareto efficiency and “No Betting” Pareto efficiency, the article shows that negligence is the optimal liability rule when injurers believe that the probability of harm is always higher than the victims do, while strict liability with overcompensatory damages is the optimal rule in the opposite case. The same results apply to bilateral accidents and, specifically, to product-related harms in competitive markets. Overcompensatory (“punitive”) damages provide consumers with insurance against their own pessimism.

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Financial Regulation & Corporate Governance

Effects of Risk Attitudes and Information Friction on Willingness to Pay for Precautionary Building Standards

Scholarship Abstract Take-up rates for windstorm-resistant buildings remain relatively low even in areas with high exposure to hurricanes and tropical storms. To further investigate this issue, . . .

Abstract

Take-up rates for windstorm-resistant buildings remain relatively low even in areas with high exposure to hurricanes and tropical storms. To further investigate this issue, we extend the theory on WTP for prevention to include risk attitudes up to the fourth order, deriving total effects and testable predictions for mixed risk averters and mixed risk lovers’ WTP relative to higher order risk-neutral benchmarks. We then employ field experiments to elicit and test the effects of higher order risk attitudes (HORAs) and information friction on coastal homeowners’ WTP for precautionary building standards with insurance discounts. To elicit risk attitudes and WTP, we employ 50-50 model-free risk apportionment lotteries and payment card WTP experiments. Empirical analyses reveal insightful heterogeneity in the correlation between homeowners’ HORA subgroups and WTP for precautions that is partially consistent with theory. We demonstrate strong causal effects of information friction on WTP for precaution in the absence of a truncated WTP range; however, the effects appear to be positive among risk lovers.

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Financial Regulation & Corporate Governance