Report: Reining in Wall Street

The Limitations of a Competitive Auto Insurance Market

How to Reduce Rates adn Increase Insurer Profitability Simultaneously
Released by: Center for Insurance Research

Auto insurance markets are atypical. To illustrate this, it is helpful to compare the market for auto insurance with the market for refrigerators. Manufacturers of refrigerators have a market incentive to produce the highest quality refrigerators as inexpensively as possible. If Company A can produce a better quality refrigerator than its competitors at a cost equal to or below those offered by the competitors, then Company A will gain market share. Similarly, if Company A can produce a refrigerator equal in quality to the refrigerators sold by competitors but can do so at a lower cost, then Company A will also gain market share. Over time, given these incentives, the refrigerator market will produce increasingly superior products at ever-decreasing costs. The benefits of competition to consumers of refrigerators are both obvious and
substantial.

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