Modeling Market Shares of the Leading Personal Automobile Insurance Companies

Private passenger automobile insurance companies employ a range of strategies and tactics to achieve their growth and profitability objectives. Gains and losses in market share among insurers suggest a fair degree of rivalrous behavior; however, previous econometric analyses have not adequately addressed the sources of firm-level advantages. Although prior studies have tested hypotheses about differential efficiency and/or service, the unit of observation has usually been a cross-section of firms or states. Recent work in the insurance competitive strategy literature tends to support the differential efficiency hypothesis, where market share is inversely related to pricing and commission ratios, but positively related to firm-level technological change and advertising expenses. This investigation employs ordinary least squares (OLS), weighted least squares (WLS) and seemingly unrelated regression (SUR) models to analyze the market share of the leading personal auto liability insurers from 1980 to 1994. The results indicate that while automation and advertising are significant sources of competitive advantage, pricecutting, reductions in commission rates and concentration in the private passenger line of insurance are not always associated with increases in market share. © 1999 Elsevier Science Inc.