Thursday, May 26, 2022
Peter Molk (University of Florida), Economic Approaches to Insurance Law in Rsch. Handbook on Int’l Ins. L. & Regul. (Julian Burling & Kevin Lazarus eds., 2nd ed., Forthcoming 2022):
Law and economics has proven enormously influential across a wide range of American law. By providing a theory about how people will respond to the law, economics offers a framework to predict how law will impact behavior and, in turn, whether a particular legal rule will produce desirable outcomes. This law and economics perspective has influenced how judges decide cases, how regulatory policy is crafted and implemented, and even how the law is learned by students.
In this chapter, I provide an overview of how law and economics has helped shape insurance law. Law and economics provides insight into how market players will respond to law and regulation and, by extension, how that law and regulation should be designed. I begin with a discussion of foundational law and economics principles and show how these principles have been applied to insurance law and regulation with foundational concepts of adverse selection and moral hazard. I then introduce the relatively new phenomenon of behavioral law and economics, which has supplemented the traditional law and economics account and is only just beginning to make inroads on insurance law and policy. Finally, I show how the law and economics theory can provide useful insights for insurance law and regulation by applying the approach to three examples: health insurance reform, valued policy laws, and flood insurance. This application both exemplifies how law and economics has been influential and reveals how law and regulation might nevertheless depart from law and economics recommendations in pursuit of values other than efficient legal rules.