Auto Insurance: Operational Level of Planning
The insurance industry is affected by many economic factors. In an attempt to better understand the operational level of planning within the insurance industry we would like to take a look at how revenue, operating expenses, and the auto insurance market directly affect the operational level of planning of any given Auto insurance provider.
Revenue generated by the auto-insurance industry is in the billions. According to Automotive News, the personal auto insurance business is a nearly $160 billion-a-year industry (Stoffer, 2005). Thus, many organizations, not just the auto insurance industries themselves, have generated plans for capturing this income.
For instance, automotive finance companies are trying to tap into this revenue source. While, in the past, this did not meet expectations, it is still attractive to automakers. According to Stoffer, “auto industry experts predict market changes eventually will lead to consolidation of vehicle sale or lease payments with insurance premiums. The benefits would include greater convenience for customers and more business for the industry” (2005). However, for the auto insurance industry, this could lead to a loss of business, which in turn would lead to management having to come up with a plan to make up for this lost revenue.
Another organization currently planning to make use of this revenue source is government. In Massachusetts, the legislature has proposed imposing surcharges on insurers that would pay for police training (Telegram & Gazette, 2005). This new fee, according to the insurance companies, would then be passed on to the consumer, resulting in higher premiums. While critics say that this training should be paid for by the taxpayer, proponents say that such police training would lead to a reduction in auto accidents and thus, less insurance payouts.
As shown by these examples, the revenue generated by the auto insurance industry leads to operational planning by other organizations besides the insurers themselves. The trends of the organizations to use this money in turn will effect the planning of the auto insurance companies as they deal with the changes such operations will mean for th...
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...more cars on the road and the total number of miles driven is up. The trend allows insurers to pay out a smaller percentage of each premium dollar in claims and expenses. Consequently, insurers are passing along some of those savings to policyholders. So far, the combination of stabilizing factors has helped insurers resist the urge to go into all-out price wars to get market share.
"Some companies can get undisciplined and irrational and can pursue growth and abandon profitability," said Allstate CEO Edward Liddy. "We aren't doing that and most of our competitors in the marketplace aren't doing that. They're pretty rational right now." (Price Water House Coopers, 1999)
Price Water House Coopers. (1999). Integrating risk and value for improved decision making . Retrieved June 15, 2005, from http://www.financewise.com/public/edit/riskm/insure/ins-pwc.htm
Stoffer, H. (2005). A New Policy. Automotive News. 79. 29. Retrieved June 18, 2005, from EBSChost, via University of Phoenix Online Library.
Telegram & Gazette. (2005). Auto Insurance Fees Would Pay for Training. E.1.
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