Drivers of Switching in Autoinsurance: Evidence from Observable and Exogenous Consideration Sets

Helena Perrone () and Fabricio Valiati ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper studies switching behavior and its determinants in auto-insurance markets using a dataset that includes information on policyholder choices and their consideration sets, including alternative contract prices. We show that disregarding consumers' consideration sets and the price of alternative offers, especially the premium offered by the previous insurance at renewal, leads to an overestimation of choice inertia and an understatement of consumer price responsiveness. We also find that previous claim history is a primary determinant of switching behavior, even after controlling for premium differentials and observed and unobserved characteristics of the contract and insurers. Our empirical evidence is consistent with choice inertia driven by learning about the true quality of the firm's service.

Keywords: insurance; price disperison; switching costs; choice sets (search for similar items in EconPapers)
JEL-codes: K2 L4 (search for similar items in EconPapers)
Pages: 21
Date: 2025-02
New Economics Papers: this item is included in nep-com and nep-dcm
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