Insurance is considered a form of risk management, where a client receives protection from an uncertain loss by an agent for an exchange of payment. An insurance consumer pays a premium amount of payment in order to be protected by an insurance company. Automobile insurance is the required in forty-nine states in our country, and drivers must obtain minimum liability coverage. Many economic thinkers would see the automobile insurance industry as being either a form of monopolistic competition or perfect competition, but I believe that auto insurance has become involved in an oligopolistic market. It is a market that is dominated by a few large sellers, where the leading firms control most of the market and the smaller firms usually follow the leads of those larger firms. The firms involved are selling a similar product, and interdependence between firms exists, which means they take into account the actions of one another as far as pricing. We can take a look last years top ten auto insurance companies in order to see how the market share is spread among the leaders (Hoz, 2011). State Farm lead the auto insurance industry with a market share of 18.6%, Allstate followed with a share of 10.5%, Geico holds 8.2% of the market share, Progressive is slightly behind at 7.5% market share, and Farmers holds 6.4% of the share. After these top five companies, there is a drop in the overall market share beginning with Nationwide Mutual at 4.5%, Liberty Mutual at 4.5%, USAA at 4.1%, and Travelers at 2.1%, and American Family Mutual at 2.0% (Hoz, 2011). The demand for auto insurance is relatively stable now that forty-nine states in the U.S. require a minimum liability coverage plan. Consumers are now pursing a higher service demand from their automobile insurance provider. Shockingly, the top five insurance companies are not all favorites among consumers (Danise, 2012). Providing excellent customer satisfaction, ease of claims, value of premium, renewing...
Cited: Danise, A. (2012). Customer satisfaction study reveals best insurance companies.
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