Purchase Of Auto Insurance Policies example essay topic

Utility of Service Property and casualty insurance, more specifically auto insurance, is an intangible product and is a service purchased by consumers that they hope they never have to use. This is contrary to most any other good or service. You would not buy a car to never use or go to a doctor and pay for treatment you do not expect to receive. The consumer pays for a promise that they hope to never collect on.

As a result the service is viewed rather negatively by the pubic and becomes an item that must be purchased out of fear of loss and by order of state statutes. Consumers have several needs that drive the purchase of auto insurance policies. The first requirements being state statutes that mandate certain coverage before registering and tagging a vehicle, maintaining a valid drivers license, and satisfying the demands of financing companies for purchased automobiles. The second reason for obtaining auto insurance policies is to protect the current assets and potential future earnings from loss. These loses may occur from damage resulting from acts of nature, collisions or from liability claims award to injured third parties. The purchase of insurance protects the consumer from financial losses up to the limits of the policy.

This provides peace of mind for the consumer and for financing companies by ensuring that monies are available to cover losses so the life and economic status of the purchaser is not impacted. Comparative or Substitute services Insurance is insurance. There is not a substitute unless that is a well-padded bank account. Realistically that is not even a substitute as losing $100,000 of an individuals hard earned dollars to one claim is far more imp active than that same person having paid premiums of $1000 per year for ten years before making that claim. The insurance company would then pay on that person's behalf, therefore resulting in an overall outlay of $10,000 from the consumer that is far more palatable by any account.

Price Elasticity The insurance industry is generally price elastic in the state of Florida. This is due to the regulations requiring drivers to carry at least two types of coverage. This requirement changes to three forms if the driver is involved in an accident causing injury to another party. The price may change for the product due to the individuals driving or claims history or the rating structure from company to company. However, the consumer, to meet state law, must purchase the product from someone. This need to purchase regardless of the price ensures the demand for the service will be there despite pricing changes.

Even with this requirement purchasers may obtain the service from other firms and often 'rate hop' every policy term. Consumer Demand and Pricing The demand by individual consumers for levels of protection is the aspect of the industry that sees the most fluctuation. The more prosperous individuals are the more likely they are to purchase broader coverages. This is due to their desire to protect the assets and earnings from loss. Pricing structure varies from company to company in the insurance industry. The rating structure is based on numerous factors and the weighing of those factors changes from company to company.

The primary inputs for liability rates include, age, marital status, gender, driving record, credit, type of vehicle, distance driven, and other drivers in the household. Liability pricing can vary widely from individual to individual and even for the same person can shift dramatically with a move from one zip code to another. The rating for physical damage coverage is generally determined by considering the cost to repair, theft statistics and crash test results for the given vehicle.

Bibliography

Florida Department of Financial Services. (2005).
Auto rate fact sheet. web Department of Financial Services. (2005).
Automobile insurance: A guide for consumers. web guide 2005.
pdf Harrington, S.E. (2000).