Abstract
The solvency and market conduct regulations play a crucial role in supporting life insurance development by boosting consumer confidence and securing a stable environment for insurers to write business. The regulation encapsulates not only the legal framework but also its enforcement. We focus on the latter and investigate the impact of solvency and market conduct examinations on life insurance development within a homogenous legal environment in the USA. The results show that more stringent regulators with respect to solvency examinations deter life insurers from their markets and channel to those markets with lenient examiners, hurting the development of life insurance in the stringent states. Additionally, regulators boost consumer confidence by providing robust market conduct practices which results in higher life insurance demand. The study has implications for the debates about the pros and cons of the current state-led regulation in the USA, the substitutability between market discipline and regulation, and the general benefits/costs of regulation for insurance market development.
Published Version
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