In a new study on insurance regulation published by the AEI-Brookings Joint Center for Regulatory Studies, Professor Scott E. Harrington of the University of South Carolina provides strong evidence that the time has come for widespread deregulation of rates, risk classification, and policy forms. He finds that the insurance industry is competitively structured and that current regulation in the states where it is binding distorts markets and subsidizes risk-taking, thus increasing losses and average premiums.

"The information and analysis that are available strongly suggest that insurance deregulation would benefit most consumers," Harrington argues in Insurance Deregulation and the Public Interest.

Restrictions on insurer risk classification, which require lower-risk insurance buyers to subsidize higher-risk buyers, are counterproductive and should be avoided, according to the study. In addition, Harrington advises, regulators should approve rates for state-mandated residual markets that are high enough to avoid significant subsidies from buyers who obtain coverage in the voluntary market.

Noting that further state deregulation of policy forms for coverage sold to medium and large businesses is clearly desirable, he contends that, if insurers must file policy forms for small businesses and personal insurance with regulators, the use of such forms should not require prior regulatory approval.

Harrington points to signs that a broad wave of insurance deregulation may be underway. Nearly a quarter of the states--Arizona, Arkansas, Colorado, Indiana, Kansas, L ouisiana, Maine, Missouri, New Hampshire, Oklahoma, Pennsylvania, and Rhode Island--have recently deregulated the rate and the contract terms and language of property-liability forms for large commercial buyers. Other states--Maryland, New York, North Dakota, Texas, and Washington--are considering that change. A few jurisdictions have recently curtailed regulating the rates for personal lines of insurance.