Dynamic pricing in regulated automobile insurance markets with heterogeneous insurers: Strategies nice versus nasty for customers
This study examines a phenomenon in one nation's automobile insurance market where insurers adopt diverse pricing strategies in this regulated industry that does not allow for such diversions—a homogeneous, insurance industry in which a government authority sets the official pricing formula as well as all of the rating factors. Insurers use a claim coefficient that reflects previous claim records of policyholder as an implicit pricing tool to over/under charge new and repeat customers. The aim here is not so much to blow-the-whistle on pricing practices that violate regulations but to describe execution details of the practices and their outcomes. The results show that firm-level, systematic, price variances that occur differ from prices that follow from applying regulated individual-claim coefficients. Based on the unique firm-level pricing strategies, this study finds that some insurers are more nice to new customers and nasty to repeat customers to increase market shares while other insurers earn high profits by being nasty to repeat customers. The assumption that a behavioral primacy effect may exist in the market may guide some firms' pricing strategies.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shapira, Zur & Venezia, Itzhak, 2008. "On the preference for full-coverage policies: Why do people buy too much insurance?," Journal of Economic Psychology, Elsevier, vol. 29(5), pages 747-761, November.
- Alma Cohen, 2012.
"Asymmetric Learning in Repeated Contracting: An Empirical Study,"
The Review of Economics and Statistics,
MIT Press, vol. 94(2), pages 419-432, May.
- Alma Cohen, 2008. "Asymmetric Learning in Repeated Contracting: An Empirical Study," NBER Working Papers 13752, National Bureau of Economic Research, Inc.
- Dahlby, Bev & West, Douglas S, 1986. "Price Dispersion in an Automobile Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 418-438, April.
- Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
- A. M. McGahan & Pankaj Ghemawat, 1994. "Competition to Retain Customers," Marketing Science, INFORMS, vol. 13(2), pages 165-176.
- Chu-Shiu Li & Chih Hao Lin & Chwen-Chi Liu & Emilio Venezian, 2010. "Pricing Effectiveness and Regulation: An Examination of Premium Rating in Taiwan Automobile Insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 35(S1), pages 68-81, December.
- Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
- Rafael Rob, 1985. "Equilibrium Price Distributions," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 487-504.
- Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-493, June.
- Woodside, Arch G. & Uncles, Mark D., 2005. "How Behavioral Primacy Interacts with Short-Term Marketing Tactics to Influence Subsequent Long-Term Brand Choice," Journal of Advertising Research, Cambridge University Press, vol. 45(02), pages 229-240, June.
- Bourgeon, Jean-Marc & Picard, Pierre & Pouyet, Jerome, 2008. "Providers' affiliation, insurance and collusion," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 170-186, January.
- Jean-Marc Bourgeon & Pierre Picard & Jérôme Pouyet, 2008. "Providers'affiliation, insurance and collusion," Post-Print hal-00366079, HAL.
- Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March. Full references (including those not matched with items on IDEAS)