Economic Analyses On "U" Curve Of Profit During Rate-liberalization Of Automobile Insurance

As one of the important act of automobile insurance industry opening, China officially announced in 2002 a rate-liberalization scheme became effective on January 1, 2003. In fact, due to such reason that insurers increased and competition became drastic, covert premium rate fall gave the evidence of market operation in advance. In this article, data are used to elucidate that profit of automobile insurance presents a "U" curve, which has a climb after drop since the substantial market competition has already begun since 2001. Comparison of profit before and after rate-liberalization in other countries shows "U" curve is a ubiquitous phenomenon during the course. The curve in our country however is different with that in other countries. Some special factors during the rate-liberalization course caused such differences. Metrological & statistical method is used to analyses automobile insurance date within Zhejiang province in the paper. Major effect on Motor Physical Damage Insurance and Third Party Liability Insurance is demonstrated seperatelly. The factors that abnormal high cost of agency and losing control of normal hazard is especially emphasized to be the decisive ones that greatly aggrandize the gradient of the "U" curve. By theory and mathematic derivation method from microeconomics, special factors that affect the "U" curve as well as its gradient during the course of rate-liberalization are analyzed one by one in this article. Agency and...