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    Dynamic pricing in regulated automobile insurance markets with heterogeneous insurers: Strategies nice versus nasty for customers

    Access Status
    Fulltext not available
    Authors
    Li, C.
    Lin, C.
    Liu, C.
    Woodside, Arch
    Date
    2012
    Type
    Journal Article
    
    Metadata
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    Citation
    Li, Chu-Shiu and Lin, Chih Hao and Liu, Chwen-Chi and Woodside, Arch G. 2012. Dynamic pricing in regulated automobile insurance markets with heterogeneous insurers: Strategies nice versus nasty for customers. Journal of Business Research. 65 (7): pp. 968-976.
    Source Title
    Journal of Business Research
    DOI
    10.1016/j.jbusres.2011.04.015
    ISSN
    01482963
    URI
    http://hdl.handle.net/20.500.11937/40475
    Collection
    • Curtin Research Publications
    Abstract

    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.

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