Abstract
ABSTRACT This paper studies two aspects of the automobile insurance market in Brazil: first, it determines the degree of competition among insurance companies, and second, it estimates and analyzes the demand for automobile insurance. Most of the studies on the automobile insurance market in Brazil analyze the performance of the firms in this sector or present regional studies of the demand for insurance and its determinants. Thus, this study innovates both in showing the competition among the firms and estimating the demand for insurance in the country. The relevance of this research lies in the sequential and ordered way it analyzes the demand in a sector. Firstly, it identifies the type of competition that takes place in the sector and then, based on this, it proposes a structural framework based on optimizing decisions for estimating the price, income, and market power elasticities of demand. Furthermore, analyzing the insurance industry is of the utmost importance since it moves significant amounts of financial resources and provides an essential service in the economy. With information about the market structure and demand profile in the automobile insurance sector it is possible to propose strategic policies for individual firms as well as for the whole sector in order to introduce more efficiency. To analyze the degree of competitiveness, several concentration indices were calculated using annually-aggregated monthly data on the premium paid to all the automobile insurance firms in the period from 2001 to 2016. To estimate the demand for automobile insurance, half-yearly data from 2002 to 2010 for each one of the 27 federative units of Brazil were used. Two main findings are presented in this study. First, we find evidence of little concentration in the Brazilian automobile insurance market, with shares being well distributed among the players. Second, we estimate the demand for automobile insurance in Brazil and find a price-elasticity of -0.47 in the short run and -1.33 in the long run, while the lagged profitability has a negative impact on the amount insured: -0.21 in the short run and -0.59 in the long run. Income does not significantly influence the demand for insurance in Brazil.
Highlights
The Brazilian insurance market is one of the most important in the economy, because it provides protection against adverse events that can reduce personal or company wealth, and because it moves large quantities of financial resources within the property incomes reported in the Integrated Economic Accounts
The structure of the Brazilian insurance market is extremely important for understanding the behavior of the firms that compose it, as well as for understanding its contribution to the country’s economic activity
Market concentration has various causes, among which can be mentioned the ease of mergers and acquisitions in markets that present firms with high profitability and synergy, the barriers to entry that some sectors can present, and the high costs in initial investments
Summary
The Brazilian insurance market is one of the most important in the economy, because it provides protection against adverse events that can reduce personal or company wealth, and because it moves large quantities of financial resources within the property incomes reported in the Integrated Economic Accounts. Shereden (1984) estimates the effects of price, income, and perception of risk over the demand for automobile insurance in 359 cities in the state of Massachusetts in 1979 He finds that demand is inelastic in relation to price and income and that the volume demanded increases substantially in areas with a greater population density. Market concentration will be analyzed by following the classic concentration indices used in industrial organization and using the annual sales volume (compiled from monthly data) of each insurance company in the period from 2001 to 2016. This period was chosen due to the availability of data and because it includes periods of internal and external economic turbulence, capturing possible changes in concentration resulting from this.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
