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Publications
Publications
  • 2020
  • Working Paper

Capital Regulation and Product Market Outcomes

By: Ishita Sen and David Humphry
  • Format:Print
  • | Language:English
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Abstract

We present evidence of product market adjustments and asset reorganizations from the largest ever shift in risk regulation in a developed insurance market. Using proprietary data on insurance risk exposures from the Bank of England, we develop a measure of regulatory constraints that is plausibly exogenous to shifts in demand. After the regulatory shift, constrained insurers reduce underwriting of traditional insurance, which became more capital intensive, and alter product composition from traditional to non-traditional-non-insurance products that offer no protection to households. Large insurers slow down, but small insurers completely pull out of traditional underwriting. Constrained insurers undergo asset reorganizations, and small insurers are more likely to be fully taken over. As a result, there is significant decline in traditional insurance from £30 billion in 2002 to £5 billion in 2015 and increase in market concentration with the share of top 10 insurers increasing from 60% in 2002 to 80% in 2015. Our findings imply that the scarcity of traditional insurance after the regulatory shift is particularly pronounced for households that match with small insurers.

Keywords

Non-traditional-non-insurance; Risk Regulation; Product Market Concentration; Small Vs. Large Insurers; Insurance Risk Exposure; Insurance; Risk and Uncertainty; Governing Rules, Regulations, and Reforms

Citation

Sen, Ishita, and David Humphry. "Capital Regulation and Product Market Outcomes." Working Paper, January 2020.
  • SSRN

About The Author

Ishita Sen

Finance
→More Publications

More from the Authors

    • April 2021 (Revised April 2022)
    • Faculty Research

    Next Insurance: Considering New Markets

    By: David S. Scharfstein, Ishita Sen and Dean Xu
    • 2021
    • Faculty Research

    Pricing of Climate Risk Insurance: Regulatory Frictions and Cross-Subsidies

    By: Ishita Sen and Ana-Maria Tenekedjieva
    • 2020
    • Faculty Research

    Institutional Corporate Bond Demand

    By: Ishita Sen, Lorenzo Bretscher, Lukas Schmid and Varun Sharma
More from the Authors
  • Next Insurance: Considering New Markets By: David S. Scharfstein, Ishita Sen and Dean Xu
  • Pricing of Climate Risk Insurance: Regulatory Frictions and Cross-Subsidies By: Ishita Sen and Ana-Maria Tenekedjieva
  • Institutional Corporate Bond Demand By: Ishita Sen, Lorenzo Bretscher, Lukas Schmid and Varun Sharma
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