author：
wei zheng
professor
department of risk management and insurance, school of economics, peking university
research fellow
china center for insurance and social security research, peking university
yi yao (corresponding author)
associate professor
department of risk management and insurance, school of economics, peking university
research fellow
china center for insurance and social security research, peking university
email: yao.yi@pku.edu.cn
address: 5 yiheyuan rd, beijing, china, 100871
peng shi
associate professor
department of risk management and insurance, wisconsin school of business, university of wisconsinmadison
yinglu deng
assistant professor
pbc school of finance, tsinghua university
abstract:
in 2015, the china insurance regulatory commission initiated a liberalization reform in the automobile
insurance industry to grant insurers more discretion in policy design, underwriting, and ratemaking. the
deregulation intended to increase competition and choices for the consumer; yet, there was little scientific
evidence on how the insurance market responded to the reform. this article examines the effectiveness of this
deregulation reform in china. leveraging a large industry dataset of more than seven million automobile
insurance policies from 63 major automobile insurers operating in china, we study policyholders’ switching
behavior among insurance providers. to better understand the heterogeneity in the impact of deregulation on
market performance and consumer choice, we further analyze the switching pattern among different types of
insurers according to the insurer's size, the company’s business structure, the jurisdiction’s market power, and
the customer’s risk type. overall, the empirical results suggest that the reform has met its original goal, leading
to higher market competition and more diversified consumer choices. we further confirm that the average
premium dropped significantly after the reform for all three jurisdictions implementing the reform; yet, the insurers’
pricing strategy was risk type-dependent, i.e., the average premium for the high risk customers increased, while the
average premium for the low risk customers decreased substantially.
keyword:
automobile insurance, competition, deregulation, insurer switching
download：
auto insurance deregulation paper_revised.pdf