Early Mover Advantages: Evidence From the Long‐Term Care Insurance Market

Abstract

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.

Cream Skimming: Innovations in Insurance Risk Classification and Adverse Selection

“…A notable exception, however, is a study by McShane et al. (), who suggest that the importance of innovation in the insurance markets has been overlooked by researchers, in part because researchers feel that it is difficult for financial service firms like insurers to create effective barriers to entry that protect their new customers from competitors. Without entry barriers like economies of scale or patent protection, new competitors may be able to copy effective insurance innovations quickly and inexpensively, suggesting that the benefits from innovation are short‐lived.…”