Auto Insurance: Factors Affecting Operational Level of Planning Team C University of Phoenix MGT330 Orlando Rivero June 20, 2005 Auto Insurance: Operational Level of Planning The insurance industry is affected by many economic factors. In an attempt to better understand the operational level of planning within the insurance industry we would like to take a look at how revenue, operating expenses, and the auto insurance market directly affect the operational level of planning of any given Auto insurance provider. Revenue Revenue generated by the auto-insurance industry is in the billions. According to Automotive News, the personal auto insurance business is a nearly $160 billion-a-year industry (Stoffer, 2005).
Thus, many organizations, not just the auto insurance industries themselves, have generated plans for capturing this income. For instance, automotive finance companies are trying to tap into this revenue source. While, in the past, this did not meet expectations, it is still attractive to automakers.
According to Stoffer, “auto industry experts predict market changes eventually will lead to consolidation of vehicle sale or lease payments with insurance premiums. The benefits would include greater convenience for customers and more business for the industry” (2005).
The Term Paper on Government Intervention in the Free Market Through the Auto Industry Bailout and Healthcare Reform
There is not necessarily a line drawn immediately down the middle of the two sides of this discussion, though many may think or like others to think that. Positives and negatives, supplemental and detrimental aspects can be attributed to the topic of free market versus government intervention. And no better present day examples can be observed then today’s Auto Industry Bailout and Healthcare ...
However, for the auto insurance industry, this could lead to a loss of business, which in turn would lead to management having to come up with a plan to make up for this lost revenue. Another organization currently planning to make use of this revenue source is government. In Massachusetts, the legislature has proposed imposing surcharges on insurers that would pay for police training (Telegram & Gazette, 2005).
This new fee, according to the insurance companies, would then be passed on to the consumer, resulting in higher premiums. While critics say that this training should be paid for by the taxpayer, proponents say that such police training would lead to a reduction in auto accidents and thus, less insurance payouts. As shown by these examples, the revenue generated by the auto insurance industry leads to operational planning by other organizations besides the insurers themselves.
The trends of the organizations to use this money in turn will effect the planning of the auto insurance companies as they deal with the changes such operations will mean for their own organizations. Operating Expenses (Robin, copy/paste your portion here) Auto Market The market for auto insurance is becoming very competitive. Nationally, rates still are rising — albeit at their slowest rate in five years. Spending on auto insurance is expected to grow an average of 1.5 percent this year, to $870 per vehicle, according to the Insurance Information institute. Nevertheless, many drivers are getting a break. In New York, 10 big auto insurers — including market leaders All State, GEICO Corp. and State Farm Insurance Co.
— have cut rates an average of 5 percent to 6 percent this year, saving New York drivers nearly $350 million(Price Water House Coopers, 1999).
State Farm, the nation’s largest auto insurance underwriter with about 19 percent market share, says it has dropped prices in 32 states this year while raising them in just one: North Dakota. We are seeing a more prudent form of competition that is allowing insurers to lower premiums while remaining profitable. An important factor in that prudence is the growth of sophisticated pricing models. Insurers are spending millions on technology that allows them to crunch underwriting data to more accurately match price to a driver’s risk. The result: They are able to cut prices with a scalpel instead of a butcher’s knife, offering hundreds or even thousands of price points based on drivers’ potential risk, instead of lumping them into a few broad categories.
The Essay on Market Model Patterns of Change 2
1. Describe the industry and explain the general pattern of change of the particular market model Health insurance in the United States providers represent competitive market because they are numerous, variety of choices, and no single entity has much power over prices. The health insurance can be considered as rapid growth industry. Recently, this industry is transforming in a rapid way and ...
For example, one policyholder might get a lower rate than another driver with an identical driving record, vehicle and age because he or she has a slightly better credit score (a factor increasingly used in determining premiums).
State Farm said last month it would move to such a tiered system in response to market share gains from competitors Allstate, Progressive Group of Insurance Cos. and others, which have been refining complex pricing models for years. Many insurers say the more nimble rate structures should help flatten out the whipsaw action of the insurance market. ‘We don’t want to get caught up in a situation where we drop rates so much and that we have bring them way up a few years later,’ said Vince Napoli, head of USAA’s auto insurance business. ‘The technologies we’re using to refine pricing is helping to smooth that out.” (Price Water House Coopers, 1999) Another factor taming auto insurance rates is that there are actually fewer accidents, which the Insurance Information Institute credits to safer vehicles. The number of vehicle crashes resulting in injuries dropped 14 percent between 1996 and 2003 from 2.2 million to 1.9 million (citation).
This is despite the fact that there are more cars on the road and the total number of miles driven is up. The trend allows insurers to pay out a smaller percentage of each premium dollar in claims and expenses. Consequently, insurers are passing along some of those savings to policyholders. So far, the combination of stabilizing factors has helped insurers resist the urge to go into all-out price wars to get market share. ‘Some companies can get undisciplined and irrational and can pursue growth and abandon profitability,’ said Allstate CEO Edward Liddy. ‘We aren’t doing that and most of our competitors in the marketplace aren’t doing that.
The Essay on Exchange Rate Price Ppp Foreign
Purchasing Power Parity and International Commodity Arbitrage Foreign Exchange Foreign exchange refers to two different things. The first is currency claims expressed in the equivalent value in foreign money. The second is actual transactions involving the conversion of money of one country into that of another. Foreign exchange is necessary because different countries have different monetary ...
They’re pretty rational right now.’ (Price Water House Coopers, 1999) (Conclusion) References Price Water House Coopers. (1999).
Integrating risk and value for improved decision making . Retrieved June 15, 2005, from http://www.financewise.com/public/edit/riskm/insur e/ins-pwc.htm Stoffer, H. (2005).
A New Policy. Automotive News. 79.
29. Retrieved June 18, 2005, from EBSChost, via University of Phoenix Online Library. Telegram & Gazette. (2005).
Auto Insurance Fees Would Pay for Training. E.1..
