Research On The Competition Of China’s Property And Casualty Insurance Industry:Based On Brand Ecomomics

Since the recovery of commercial insurance business in1979, the rapid increase of China’s economy resulted in the fast growth of the demand for the property and casualty insurance. The gowth of the market demand attracts the entries of new insurers, and the number of insurers operating in market increases year by year, but the market concentration decreases on the contrary. That change leads to the market converting from a monopoly market toward the competitive market. With the growth of the economy and the per capita income, we can expect that the market competition will be further intensified in future. Market regulations become comprehensive, and the insured’s rights and interests are consolidated by the issue and implement of the new Insurance Law and other laws and regulations. The inherent unregulated compeition actions have been suppressed. The competition means like price war or just increasing sales staff is outdated, and service competition has become the main weapon. So we need to explain the competition of China’s property and casualty insurance market from a new perspective. Different from other traditional industries, the products of the insurance maket can be regarded as exprience goods, and the property and casualty insurance contract is the aleatory contract and have to been renewed periodically. The analytical framework of industry organization theory doesn’t apply to research the competition of the market. For those two reasons, this paper from the perspective of brand economics, introduces the brand credit of both the insurer and the insurance salesperson to construct the market competition model.The paper mainly adopt the research mothods of literature review, description and summarization, and normative analysis. Firstly, chapter2reviews the research on industry competition of the industry organization theory, especially the new progress on industry dynamics, also reviews the literature on insurance demand and brand credibility. The existing research neglects the influence of insurance buying behavior of the insurance applicant and the personal brand credit of insurance salesperson on the competition. Secondly, chapter3discribes and summarizes the data, laws and regulations, industry practices, insurance yearbook and reports. By the discription of competitive landscape and brand credit state of China’s property and casualty insurance industry, the chaper points out the changing trends of the market demand and the environment of regulations and operations, and their effects on the market competition. Finally, chapter4,5and6are the theory model parts, and correspondingly analyses how the insurer’s brand credit influcences on the applicant’s insurer selection process, the market competition and equilibrium of the competitive property and casualty market with insurer’s brand credit, the relationship between personal brand credit of insurance salesperson and the market competition, and other questions on brand credit and competition.Given that the policyholders need to pay the premium in advance, and the insurance industry belongs to service industry, the paper identifies the insurance as experience goods,then difines the insurer’s brand credit for the first time, which is introduced in the policyholders’selection process for the proper insurance company. Specially the anaylsis is extended to the renewal process, mainly centreing on how the variation of the policyholders’expection on their insurer’s brand credit will influence the renewal decision. Since the loss amount of insurance object is independent random variable, the paper proposes that the service quality gained by the policyholders is independent and random, and its expectation and distribution depends on the insurer’s investment of human capital on unit policy. On the basis of the analysis of chapter4and the definitions of brand credit, expectation and customer base, chapter5constructs a model that analyses competitive property and casualty insurance market with the insurers’brand credit and service quality variation. The reverse change between the insurer’s marginal profit and its customer base, the free entry or exit, ensure the existence of equilibrium in together. Different from other models analysing the firm’s reputation or adverse selection, the service quality provided by one insurance company has random disturbance.The interdepence of the loss of the insurance object ensure that the insurer’s service quality has the stable distribution, which makes the analysis feasible.In reality, it is the insurance salesperson working as intermediary to help the insurer to establish relationships with the clients. Chaper6studies the relationships between the insurance salesperson and the market competition. Insurance salesperson can be regarded as market maker, who mitigate the information asymmetry between the policyholders and the insurer. On the one hand, she provides the applicant with the services of consulting, verifying insurance coverage, designing insurance plan and offering advice on loss prevention. Besides that, she also helps to select proper insurance company and sign the contract. On the other hand, she seeks the clients for the insurer, help the insurer to come to an agreement with the insured and to realise premium income. The author also studies the dual principal-agent problems between the insurance salesperson with the applicant and the insurer separately, and constructs a simple model with an infinite horizon to analyse the conditions on which the insurance salesperson performing the duty of the utmost good faith and work hard. In the end of the chaper, the author analyses interaction and interdepence mechanism of the salesperson’s personal brand credit and the insurer’s brand credit, and discusses the vilidity of the reform measures centering on the insurance intermediaries and insurance salesperson.Based the research in each chapter, the paper concludes that, under the anticipation of the increase in per capita income, there will be a large number of potential insurers, so there will be more competition in the property and casualty market. Furthermore, the changes in regulations and business environment will force the firms to give up the current pattern of extensive growth. According to the analysis in this paper, the applicant will terminate the insurance contract at once when she gained inferior service that cann’t match the premium. Such action will restrict the insurer to lower its brand credit or to shirk, and also will reduce the possibility that the insurance salesperson to choose low effort and to tell a lie. Relative conclusions are reached on the premise that the market is in stationary equlibrium, but China’s property and casualty insurance market is in the phase of rapid growth, and the number of the newly arrived customers is so large that can offset the number of people who quit the market. As the number of insurance companies and salespersons increases, costomer base will beome more and more important.To guarantee the sustainable development and the constant efficiency promotion of the insurance industry, China Insurance Regulatory Commission(CIRC)shall attempt to remove the information asymmetry between the insurer and the policyholder. The paper proposes that the regulators to disclose the insurer’s service quality indicators, such as the claim settlement rate, the rate of complaint, and claims processing cycle.Those indicatiors can not only provide guidelines for the insurance applicant,but also force the insurer to continously promote service quality and brand credit, then to ensure the industry’s sustainable development.In a theoretical sence, the paper introduces the insurer’s brand credit into the applicant’s insurance company selection process, which can reflect the sequence of first choosing the insurer then choosing the best insurance contract, and the paper as well as analyses how the variation of the policyholders’expection on their insurer’s brand credit the influences on her renewal decision. Combining with the characteristics of property and casualty industry, this paper argues that the insurer’s brand credit is depended on the insurer’s human capital investment on unit policy, and also analyses the effects of relative brand credit building decision on its customer base. Such an market competition problem research, avoides the problem that lacking the analysis of consumer’s behaviors, but just from the respective of insurance companies.In the realistic sence, the analysis makes the applicant’s insurance buying process more correspond to the reliaty, that the applicant does not choose the best policy, but chooes one insurance company’s best policy. In addition, the author takes into account of the important market making role of the insurance salesperson in matching the insuer with the applicant, and analyses interaction and interdepence mechanism of the salesperson’s personal brand credit and the insurer’s brand credit, and so the influence of salesperson turnover on market competition. Lastly, the honest operation that the paper point to is more closer to the premise of the insurance.Only each party to the insurance contract performs the duty of the utmost good faith principle, the insurance can play the role of spreading risks, and the applicant will always chooses to buy insurance, but does not choose to quit the insurance market. And the applicant’s quitting decision will make the insurance market lost its foundation.