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Controlling Automobile Insurance Costs

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  • J. David Cummins
  • Sharon Tennyson

Abstract

We begin by providing an overview of the auto insurance system and the structure of the auto insurance market. We then turn to an analysis of the factors underlying the auto insurance price increases experienced in recent years. We find that the auto insurance inflation of the 1980s was caused primarily by increases in cost factors, especially inflation in the severity of personal injury claims. There is no persuasive evidence that increasing profit rates or expense loadings contributed to inflation in premiums. The paper concludes with recommendations for bringing costs under control.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.6.2.95
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 6 (1992)
Issue (Month): 2 (Spring)
Pages: 95-115

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Handle: RePEc:aea:jecper:v:6:y:1992:i:2:p:95-115

Note: DOI: 10.1257/jep.6.2.95
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Cited by:
  1. McShane, Michael K. & Cox, Larry A. & Butler, Richard J., 2010. "Regulatory competition and forbearance: Evidence from the life insurance industry," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 522-532, March.
  2. Reimund Schwarze & Thomas Wein, 2005. "Is the market classification of risk always efficient? evidence from german third party motor insurance," LSE Research Online Documents on Economics 36104, London School of Economics and Political Science, LSE Library.
  3. J. David Cummins & Mary A. Weiss & Richard D. Phillips, 1999. "The Incentive Effects of No Fault Automobile Insurance," Center for Financial Institutions Working Papers 99-38, Wharton School Center for Financial Institutions, University of Pennsylvania.
  4. Brockett, P. L., & Chen, H. M. & J. R. Garven, . "Event Study Methodology: A New and Stochastically Flexible Approach," Working Papers 003, Risk and Insurance Archive.
  5. Martin Boyer & Karine Gobert, 2009. "Professional Liability Insurance Contracts: Claims Made Versus Occurrence Policies," Cahiers de recherche 09-03, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  6. Berger, Allen N & Cummins, J David & Weiss, Mary A, 1997. "The Coexistence of Multiple Distribution Systems for Financial Services: The Case of Property-Liability Insurance," The Journal of Business, University of Chicago Press, vol. 70(4), pages 515-46, October.
  7. Sharon Tennyson, 2007. "Efficiency Consequences of Rate Regulation in Insurance Markets," NFI Policy Briefs 2007-PB-03, Indiana State University, Scott College of Business, Networks Financial Institute.
  8. Reimund Schwarze & Thomas Wein, 2005. "Is the Market Classification of Risk Always Efficient? - Evidence from German Third Party Motor Insurance," Working Paper Series in Economics 3, University of Lüneburg, Institute of Economics.
  9. Steven Raphael & Lorien Rice, 2000. "Car Ownership, Employment, and Earnings," JCPR Working Papers 179, Northwestern University/University of Chicago Joint Center for Poverty Research.
  10. Domenico SCALERA & Alberto ZAZZARO, 2004. "From regulation to free market: the experience of the European motor insurance market," Working Papers 205, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  11. Patrick L. Brockett & Hwei-Mei CHEN & James R. GARVEN, 1995. "Event Study Methodology: A New And Stochastically Flexible Approach," Risk and Insurance 9507001, EconWPA.
  12. Susan J. Suponcic & Sharon Tennyson, 1995. "Rate Regulation and the Industrial Organization of Automobile Insurance," NBER Working Papers 5275, National Bureau of Economic Research, Inc.
  13. P. Picard, 1998. "Insurance fraud : theory," THEMA Working Papers 98-26, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  14. Khazzoom, J. Daniel, 1999. "Pay-at-the-Pump Auto Insurance," Discussion Papers dp-98-13-rev, Resources For the Future.
  15. Artis, Manuel & Ayuso, Mercedes & Guillen, Montserrat, 1999. "Modelling different types of automobile insurance fraud behaviour in the Spanish market," Insurance: Mathematics and Economics, Elsevier, vol. 24(1-2), pages 67-81, March.
  16. Brockett, Patrick L. & Chen, Hwei-Mei & Garven, James R., 1999. "A new stochastically flexible event methodology with application to Proposition 103," Insurance: Mathematics and Economics, Elsevier, vol. 25(2), pages 197-217, November.

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