Joseph Boor's articles for Course 5

[islas_del_maiz]

He said in his papers that the P/C insurance market is a commodities market, like the markets for soybeans and pork bellies. I was a little depressed to discover this. Anyone had a similar reaction? Is this the time where you would think about taking some SOA exams too?

[ed999]

how does that disappoint you???

[islas_del_maiz]

I think at least 2 things. One is what Boor said in the articles, namely the constant up and down cycles and the implied intense competition, frequent mergers and dissolvencies, and all that. And I would think as a company, it requires enormous hard work to get and maintain competitive advantages in a commodities market where products are indistinguishable and demand is stable. The other is that, for example, pricing commodities doesn't sound the most exciting, like it's not fun to to price toothpastes and soap bars. Certainly pricing auto insurance has many dissimilarities with pricing toothpaste, but still, they have the significant similarity that they are both commodities.

[Colymbosathon ecplecticos]

Maybe so for routine auto, but what about auto for drunks? Some auto classes are commodities, others are specialty lines. The "easy" ones just require efficiency, the "hard" ones require a better class plan.

[Wigmeister General]

I think at least 2 things. One is what Boor said in the articles, namely the constant up and down cycles and the implied intense competition, frequent mergers and dissolvencies, and all that. And I would think as a company, it requires enormous hard work to get and maintain competitive advantages in a commodities market where products are indistinguishable and demand is stable. The other is that, for example, pricing commodities doesn't sound the most exciting, like it's not fun to to price toothpastes and soap bars. Certainly pricing auto insurance has many dissimilarities with pricing toothpaste, but still, they have the significant similarity that they are both commodities.

Q: How does one insurer differentiate its product from another?
A: Price and service. (And yet, price and service are virtually indistinguishable in a competitive market. Hmmm)

Q: Is insurance demand stable?
A: For personal lines, it's obviously true. For commercial lines, certainly WC, GL, AL and Prof Liab have a stable demand. Insureds change insurers only when there's a price shock or if their own insurer fails to renew. Hmmm.

I'd say, insurance functions much like a commodity.