Equilibrium models of dynamic insurance markets can be bifurcated according to underlying assumptions about whether or not insurers commit to long-term contracts. The difference is substantial in that commitment models imply price highballing over time while no-commitment models indicate price lowballing. Extant empirical studies provide mixed evidence, however. We use long-term care (LTC) insurance data, which allow us both to better control for heterogeneous, observable risk, to examine dynamic profitability and pricing in a relatively young, innovative insurance market. Our tests generally indicate temporal price lowballing, thereby providing support for the no-commitment models. Copyright The Journal of Risk and Insurance, 2004.
Researchers frequently question whether financial firms benefit by developing new products because barriers to entry common to other industries generally do not exist. Studies of early mover advantages for new financial products provide mixed evidence at best. We find evidence of early mover advantages in the relatively young market for long‐term care insurance (LTCI) using data that allow broad testing of financial performance. Product differentiation, individual lines exposure, firm size, and traditional health insurance experience also affect financial performance.
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