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

33 Pages Posted: 21 Nov 2004

See all articles by Domenico Scalera

Domenico Scalera

University of Sannio - Faculty of Economics

Alberto Zazzaro

Polytechnic University of Marche - Faculty of Economics

Date Written: November 2004

Abstract

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 competition model, we show that in the short run price deregulation entails decreasing investments in monitoring 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.

Keywords: Motor insurance, Spatial models, Regulation

JEL Classification: G22, L11, L50

Suggested Citation

Scalera, Domenico and Zazzaro, Alberto, From Regulation to Free Market: How to Explain the Experience of the European Motor Insurance Market (November 2004). Available at SSRN: https://ssrn.com/abstract=621561 or http://dx.doi.org/10.2139/ssrn.621561

Domenico Scalera (Contact Author)

University of Sannio - Faculty of Economics ( email )

Via Nicola Calandra, 4
Benevento, 82100
Italy
+39 0824 305237 (Phone)
+39 0824 305315 (Fax)

Alberto Zazzaro

Polytechnic University of Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
147
Abstract Views
1,529
rank
236,768
PlumX Metrics