Information Shocks and Competition in Insurance Markets: Evidence from the Great Recession
We measure insurer responses to new exogenous ratemaking information — changes in credit risk beginning in 2007 — to determine if market competition is effective in protecting consumers. Extant literature yields mixed conclusions regarding efficiency and competition in insurance markets. We find that insurers proactively adjust pricing models in response to new information. In fact, results suggest increasing certainty from new information reduces the price of insurance. This is consistent with competition in automobile insurance markets.