The split of Insurance Products and Services in the Market Place

E-1600 Economics of Business
Professor R. Wayland

Authors
Steven Washburn
Glenn Tam
Derio Chan
Anupam Raman
Robert Rothschild
Varun Malhotra
Tiffany Hart

December 9, 2014

Hypothesis

On several levels, the Internet and related advances in technology have significantly affected financial services broadly, and insurance markets more specifically. When combined with globalization and regulatory reform, these advances have forced the insurance industry to become more competitive. We will discuss here specifically the split or disruption in the insurance business with a focus on the auto insurance product and less complex personal insurance products. These two products are on a trajectory to become fully commoditized with little or no agency interaction within 30 years.

To the extent that the Internet reduces transaction costs, it also creates opportunities for new intermediaries as well as existing ones. It also has a natural influence on product design. For example - in some cases it is economically attractive to unbundle and repackage various forms of coverage. We will discuss this further in reference to driverless cars and bundling the insurance with the product later in the paper.
This paper is organized in the following manner. First, we will briefly look at internet trends as the introduction. Next we will summarize the traditional insurance business, and the reduction of transaction costs through internet insurance. Then we will look at the data showing the split with relation to Steven Klepper’s Product life cycle model. We will then look at the current market share for the Auto Insurance Industry, followed by the future of the Auto Insurance product. Finally, a set of concluding remarks based on our initial hypothesis.
Introduction

Insurance firms saw the need to