Marketization, Competition, and Insurance Pricing: The Comprehensive Evidence from China

Yunpeng Wang, Jingxin Sun and Chun-Ping Chang

Emerging Markets Finance and Trade, 2021, vol. 57, issue 14, 3984-4003

Abstract: As a typical deviation from profit-maximizing, the revenue-maximizing behavior has explained the strategy of firms in many industries. This research first looks into the Chinese non-life insurance market and finds evidence of revenue-maximizing behavior of the non-life insurers. We construct a model based on game theory to reflect the revenue-maximizing behavior and calculate the Nash equilibrium of the game. The research finds that revenue-maximizing players will incur operation loss in the game; the insurers with less competitive strength will suffer more loss. The theoretical results are hence applied tests by case study on Chinese auto insurance industry. The panel cointegration test and the regression results reveal that a more liberalized regulatory regime will result in a lower price, while large insurers tend to take advantage of their market power to price at a higher level than smaller insurers, this finding corresponding to the result of our theoretical model.

Date: 2021
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DOI: 10.1080/1540496X.2020.1771304

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