Motor Insurance Market Research Articles

Eliciting Customers’ Preferences in the Cooperative Insurance Industry: Evidence from the Saudi Motor Insurance Market

This research aimed to provide a better understanding and analysis of consumer patterns relative to behavioral preferences in the Saudi cooperative motor insurance market. This aim was motivated by the fact that customers’ preferences have been underexplored in this market. Thus, this paper applied a multi-attributes decision analysis methodology to analyze the decision process of purchasing or retaining cooperative motor insurance based on a discrete choice experiment and a choice-based conjoint analysis. The methodology was conducted via a designed questionnaire that asked 385 customers in the Eastern Region to choose between a finite set of decision purchase options that varied along three key attributes: type of coverage, availability of discount, and insurance premium. Sample results showed that the most important attributes were the insurance premium, followed by the type of coverage. The availability of a discount was the least important attribute; however, compared with men, women placed a higher importance on coverage and discounts. The findings can be valuable to policymakers and managers of insurance companies in designing new characteristics for cooperative motor insurance products in Saudi Arabia in line with Saudi Arabia’s Vision 2030. JEL Classification: C9, D7, C13, G22

European motor insurance demand: a spatial approach of its effects and key determinants

The expansion of the European Union has intensified road traffic from, at least, two perspectives: it increased free mobility of people and goods, along with structural funds available for infrastructure improvement. Consequently, connections between regions/countries have improved, and a spatial diffusion effect is seen in the car transportation behaviour. We study the effect of Human Development Index (HDI) along with other important socio-economic, demographic and institutional factors on the motor insurance market in 31 European countries. Simultaneously, we evaluate if the crucial spatial diffusion effect is present on the European motor insurance market. Findings reveal that HDI, urbanization and car fleet positively impact the motor insurance market, while unemployment and population density exhibit an opposite effect. Overall, results are robust to a set of additional control factors, but sensitive relative to institutional factors and emerging and former communist countries group. Estimations confirm the assumption of spatial diffusion, while the assessment of the direct and indirect effects shows that most of the factors internally impact the dependent variable, and an international effect is at work for the HDI. Our findings may enhance the understanding of the European motor insurance market and provide some valuable insights from a policy perspective.

Risk Self-Selection and the Concept of Equilibrium in a Competitive Insurance Market

The purpose of this paper is an analysis of the presence of self-selection mechanisms on the market that could bring the market closer to the separating equilibrium state, in line with the Rothschild–Stiglitz equilibrium model and its subsequent modifications. An example is the Polish market of compulsory third-party liability insurance of vehicle owners. This paper describes this market in terms of both its structure and its financial results. The main focus is on describing the assumptions of the Rothschild–Stiglitz model for markets operating under the conditions of information asymmetry and based on the self-selection mechanism, allowing for an unequivocal determination of the insured’s profile without the need to actually observe the insured’s behaviour. Finally, we show that thanks to the self-selection induced by the possibility of driving behaviour monitoring, the industry can minimise the negative effect information asymmetry has on the motor insurance market. This can be achieved, for example, by observing the choices made by the insured after being offered a new voluntary contract with a premium based on telematics data. Our analysis was carried out with the use of three selected characteristics that can determine the insured’s risk profile, i.e., distance covered, self-assessment, and insurance premium paid; the significance of the latter—although it may be intuitive—is questionable at commonly accepted significance levels. Therefore, the main result is that although there is some evidence on the disputed matter, there can be no definitive conclusion—especially in terms of risk as measured by insurance premium.

Usage‐based insurance and its acceptance: An empirical approach

AbstractThis study aims to explore the motor insurance market's attitude towards usage‐based insurance (UBI), and thus its readiness for a launch in the near future. Data on client perception was collected using a structured questionnaire. On the basis of this, an initial selection of factors, other than income, that could influence the declared attitude of drivers was demonstrated showing that it is primarily dependent on certain demographic characteristics like their age, sex, or place of residence. A strong relationship was also demonstrated with respect to the intensity of the vehicle's use, to the amount of the insurance premium they have paid, and to the self‐assessment of the respondents' driving skills. Clients are likely to accept the concept of UBI once implemented, but that they are not ready yet to give up the traditionally used methods of premium calculation. Their attachment to discounts granted can be very strong in particular to the no‐claims bonus.

Emerging technologies enabling the digital transformation of motor insurance in India

Objectives: The research study finds out the impact of emerging technologies on the motor insurance market. This study looks at the need for Insurers to align business models with emerging technologies. Methods: This study makes use of secondary data which have examined digital transformation in the motorinsurance market in India. We have used the survey findings of the Boston Consulting Group (BCG) and Federation of Indian Chambers of Commerce and Industry (FICCI) covering 3300 internet customers through a representative sample. Findings: The commodification of motor insurance is an opportunity to automate processes for efficiency through the entire customer journey from purchase of insurance to making a claim. Data is very critical to decision-making and using technologies like telematics, machine learning & artificial intelligence, the insurers can draw better inferences from data to make decisions with an element of speed and efficiency. Novelty: There is paucity of research on motor insurance for Indian market especially to integrate the impact of all technologies in one research study as highlighted here. Keywords: Motor Insurance; technology; digital; transformation; India

Usage‑Based Insurance jako instrument przywracania równowagi na polskim rynku ubezpieczeń komunikacyjnych

Celem artykułu jest weryfikacja możliwości redukcji negatywnego wpływu asymetrii informacji na rynek ubezpieczeń komunikacyjnych przez wdrożenie produktów typu Usage‑Based Insurance. Autor dokonuje analizy ekonomicznej, uzyskując przewidywania modeli rynku przy zastosowaniu trzech przykładowych strategii wdrożenia rozwiązań telematycznych. Wykazuje, że nie każdy ze scenariuszy doprowadzi do otrzymania pożądanego stanu równowagi i wyłącznie prawidłowy wybór strategii rynkowego wdrożenia rozwiązań telematycznych pozwoli ubezpieczonym z grupy niskiego ryzyka otrzymać pełną ochronę przy składce sprawiedliwej. Będzie to stanowić poprawę w sensie Pareto w porównaniu do ich położenia w warunkach występowania asymetrii informacji i może zostać osiągnięte przez wdrożenie produktów wykorzystujących dane z tzw. czarnych skrzynek lub urządzeń typu dongle.

Consumer Search Ability, Price Dispersion and the Digital Divide

AbstractThe ‘digital divide’ in online activities is believed to arise from differences in Internet access, but this paper advances an alternative explanation that is related to consumer search ability. It argues that this leads to greater price dispersion, causing some consumers to be discriminated against. It analyses price data for the UK Internet motor insurance market, collecting data on 32,255 prices for 110 sub‐markets, where differences in price dispersion across these by age, occupation and sex of the driver are argued to reflect differences in search ability. Allowing for price dispersion to also depend on the insurance risk, it finds greater price dispersion for consumers with weaker search abilities, i.e. older, unemployed, retired or female consumers. As this is not explained by alternative hypotheses, the paper concludes that improved Internet access alone will not close the ‘digital divide’. The implication is that policymakers should address the online search abilities of individuals as well as Internet access.

The Italian Motor Insurance Market: Will the Recent Interventions Solve the Old Efficiency Problems?

Among the main European countries, Italy continues to be the one with the highest frequency of accidents and the highest average cost of damages. Moreover, there is a relationship between premiums and compensation costs: insurance premiums follow the trend of accident frequency and the average cost of claims. Therefore, this paper analyses the dynamics of the Italian insurance market in terms of premiums, claims and fraud. It then considers recent public interventions in relation to their efficiency in dealing with the problem of the excessively high level of premiums. Finally, an explanation is found for the weakness of competition and the distributional structure of Italian insurance companies.

Attitudes and decisions of the motor insurance buyers in Poland

Motor insurance constitutes the most popular type of insurance products purchased in Poland and consequently the largest part of non-life insurance sector. In this paper the selected results of the questionnaire survey concerning attitudes and choices of the motor insurance buyers on the Polish market are presented. First, the current situation on the Polish motor insurance market is discussed. Next, the scope of the motor insurance held by respondents, their forms and used distribution channels are analysed. The stress is put on the level of the customers` loyalty to the current insurer, as well as the factors influencing the choice of a specific insurance company and its offer. Finally, the analysis concerning the statistical interdependencies between selected characteristics of the respondents is carried out. The conducted research can be useful for the insurance companies, interested in improving their motor insurance offer, as well as the insurance intermediaries serving individual customers.

Impact of Underwriting Cycles on the Solvency of an Insurance Company

This paper studies the solvency of an insurance firm in the presence of underwriting cycles. A small or medium-size insurance company with a price-taker position in the market is considered. Its premium income is assumed to obey an autoregressive process with cycles. Specifically, the premium income for a specific calendar year is influenced by the market experience for the last couple years. Under this classical AR(2) dynamics governing the premium income, an explicit expression for the ultimate ruin probability is derived, using a martingale approach, in the lighttailed claims case. Furthermore, the logarithmic asymptotic behavior of the ultimate ruin probability as well as the typical path to ruin are investigated. Then a comparison is made with the classical case where the same company operates on a market without such cycles. Asymptotically, the presence of market cycles is shown to increase the risk for the company. Numerical illustrations are performed on Canadian motor insurance market data and support the theoretical analysis.

Understanding price competition in the German motor insurance market

This paper analyzes price competition in the German motor insurance market since 1994 and looks for evidence to back up a claim frequently found in the trade literature—that there have been two recent price wars in this industry, the first in 1996–1999, the second in 2005–2006. In a first step, we analyze the development of the German motor insurance market and compare it to that of other property-liability lines of business. In a second step the applicability of price war definitions found in the marketing literature to the German motor insurance market is checked. In a third step, a comparison to reference cases from other industries, where price wars have been subject to academic analysis, is conducted to complement the analysis. We conclude that, contrary to reports in the trade literature, the periods of 1996–1999 and 2005–2006 should be considered as times of intense competition in the motor insurance industry, not as times of price war.

Customer loyalty in the UK general insurance market

This report examines the issue of customer loyalty in the UK general insurance market, examining what types of customers are likely to be loyal, and whether insurers can modify their strategy to capture more loyal customers. Concentrating on the volatile motor insurance market with a 12-month survey of over 24,000 policyholders, our findings reveal a worrying scenario in the contemporary marketplace.

The Unpleasant Effects of Price Deregulation in the European Third-Party Motor Insurance Market: A Theoretical Framework

Abstract In some European countries, the liberalization of the motor insurance market in the 1990s led to substantial increases in fares and claims throughout the whole decade. In this paper we argue that these phenomena are due to the impact of liberalization on companies' optimal incentives to fight fraud. By developing a circular city competition model with a cost-reducing stage prior to the price game and a settlement stage following it, we show that price deregulation entails decreasing monitoring investments and increasing claims both in the short and long run. Even equilibrium premiums may steadily increase if the ``competition effect" connected to new entries is outweighed by a ``monitoring effect" that raises marginal costs.

From Regulation to Free Market: How to Explain the Experience of the European Motor Insurance Market

In some European countries, the liberalization of the motor insurance market occurred in the 1990s led to increasing fares and claims with profits staying stable or decreasing. In this paper, we argue that these phenomena are due to the impact of liberalization on the companies' optimal choices. In particular, in the context of a spatial model, we show that in the short run price deregulation entails decreasing investments in and increasing indemnification costs, such that prices may increase while profits remain unaltered. In the long run, when the number of firms changes endogenously, premiums can be higher or lower than premiums prevailing under regulation, according to the dominance of a competition effect connected to entries or a monitoring effect raising marginal costs.

Firm Size Distribution in Small Samples

AbstractSutton (1998) has recently proposed a theoretical lower bound to firm size inequality when a market is made of several independent submarkets. His results are valid asymptotically, as the number of submarkets becomes arbitrarily large. We show that, in small samples, his results can be interpreted as a positive relationship between an index of firm size inequality and the number of submarkets. We also test this relationship in the Italian motor insurance market.

New entrants in the financial services sector: the case of Kwik‐Fit insurance services

Examines Kwik‐Fit, a non‐traditional entrant in the financial services sector and analyses their entry strategy for the motor insurance market. Highlights the importance of effective customer relationship management, staff motivation and an innovative approach to selling. Provides an example of good practice for a new entrant to financial services and highlights long‐term challenges associated with this type of business.

An Econometric Model of the Aggregate Motor Insurance Market in the United Kingdom

Introduction Although individuals' insurance decisions have attracted a great deal of theoretical interest from economists, except for Sherden (1984) applied studies related to motor insurance have been rather scarce. This is surprising, because other issues relating to car ownership--taxation, road usage, and the purchasing decision itself--have been extensively examined. Because motor insurance is a compulsory requirement in the United Kingdom under the Road Traffic Acts, it is of interest to examine this particular component of expenditure. It would be highly desirable to have access to microdata relating to expenditure on motor insurance and related products and to have detailed data on insurers. Data of this type are not available in sufficient quantities to enable one to conduct a thorough analysis. At the aggregate level, a longer time series of data can be utilized, and it is of interest to examine the interaction between demand and at this level of aggregation. For example, government regulation applies to the entire market, and so some knowledge of its workings is necessary for the successful implementation of specific economic policies. Forecasting is another area where an aggregate model might prove useful. Despite certain attractions (and the necessity) of working with aggregate data, there are drawbacks. Changes in the microstructure of a model are always ignored in studies using aggregate data. In this case, one feature not captured is the distinction between third-party and comprehensive coverage. An increase in the number of young drivers, for example, is likely to lead to more third-party coverage, a feature not represented in the aggregate model. Aggregate models are usually based on the underlying assumption of a representative agent whose decision problem is captured by a stylized mathematical model. At the empirical level, aggregation issues are typically discounted, and the model is estimated as if the microproperties carry over to the macroparameters. Although this may be unrealistic, data limitations often necessitate such an approach, which does, at least, give some structure and a theoretical basis to the analysis. This article argues that using a representative agent model derived from microeconomic theory to capture the side of the model is unrealistic, mainly because insurers base their pricing behavior on expectations and because firms are inherently heterogeneous. The approach adopted here is intended to be flexible enough for the data to determine the precise form of the supply side. More commonly used models of demand are considered, but only the broad implications of the theory are tested with the data. The empirical work uses the econometric concept of cointegration to analyze the time series properties of the data, leading to a parsimonious error correction model. The objective is to develop an empirical model in which the estimated parameters have desirable statistical properties. The approach is to consider appropriate theoretical models and then to specify empirical models that reflect the important implications of the theory. The U.K. Motor Insurance Market The Supply of Motor Insurance Motor insurance in the United Kingdom is provided mainly by large multiple line insurers and by syndicates of underwriters operating through the Lloyd's of London market. In 1983, for example, there were 315 companies licensed by the Department of Trade and Industry to provide motor insurance in the United Kingdom in addition to 43 Lloyd's syndicates (Department of Trade and Industry, 1984; Rowe and Pitman, 1985). Of the 315 companies, the top twenty (in terms of premium income) accounted for 91 percent of the U.K. motor insurance market in 1983, while the 43 Lloyd's syndicates accounted for 14 percent (British Insurance Association, 1983; Rowe and Pitman, 1985). Although market share is concentrated in the hands of a relatively small number of insurers, there is fierce premium rate competition. …