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Analysis on Possibility of Auto Insurance Customer's Company Switching
Journal of Insurance and Finance
2014, 25(3),
pp.3-36
Publisher : Korea Insurance Research Institute
Research Area : Business Management
Publisher : Korea Insurance Research Institute
Research Area : Business Management
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This study focuses on factors for an auto insurance customer's intention to switch to another auto insurance companies. The collected data by Korea Insurance Research Institute's Annual Korea Insurance Customers Survey, such as customer satisfaction, loyalty to a current insurance company, annual insurance premium, and individuals’ socio-demographic variables, are empirically examined as to have significant influence on probability of a customer’s switching intention. A defected customer could get benefit from switching with reduced auto insurance premium as long as his/her satisfaction level remains the same as an auto insurance company he/she left. In addition to a customer’s satisfaction, loyalty to a current auto insurance company and psychological factors, of which a customer might think important, have significant effect on a customer’s switching intention. Endogeneity could arise since current premium is observable and highly correlated with unobservable premium, which could be offered by another auto insurance company. Since auto insurance premium and customer’s socio-economic variables are correlated to each other, endogeneity problem could have effect on estimation result. This research takes into account this endogeneity problem by estimating instrumental variable probit model. Estimation result shows that the probability of a customer's switching intention increases in premium and decreases in satisfaction level, a customer’s loyalty, and psychological factors. The findings imply that search and switching cost to defect current insurance company do exist in Korean auto insurance market, which are similar ones as previous literature.
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