The Revolving Door and Insurance Solvency Regulation

Abstract

Solvency regulation of the U.S. insurance industry occurs at the state level and is led by insurance commissioners who wield significant discretion. I construct a novel dataset of the employment history of these commissioners and find 38% of them work in the insurance industry after their term (“revolvers”). Revolvers are more lenient when regulating insurers' solvency along multiple dimensions. Consequently, insurers in revolver-led states over-reported their capitalization during the 2008 financial crisis by up to 10%. Revolvers’ leniency can lead to inflated insurer credit ratings, and consumers can be overpaying up to $27 billion in insurance premiums a year.