This project provides an empirical analysis of product liability insurance focusing on three classes of issues: the functioning of the rate-making process, the performance of the product liability insurance market, and the impact of state insurance regulations and states' product liability statutes on insurance market performance. Among the key matters of interest are: (1) determination of the speed of the merit rating adjustment process and the relationship of this updating to the insurance regulation structure; (2) the role of uncertainty in loss performance in influencing insurance rates, differences across regulatory regimes in the role of uncertainty, and the impact of uncertainty on price competition and quantity rationing; (3) the effect of differences in regulatory and product liability regimes across states on changes over time in price competition and quantity rationing during the 1980-84 period; and (4) the nature of the non-linear price schedules for insurance. Although a substantial literature exists on recent patterns in the insurance industry, with the exception of some recent work in medical malpractice, the entire literature has been devoted almost exclusively to analyzing aggregative data on total premiums and total loss rations by state and by year. The current project utilizes a data base consisting of approximately individual policies over a five year period. This data base will enable the research to distinguish changes in insurance price and insurance quantity purchased. This will greatly extend the domain of concerns that can be addressed.
