Market structure and performance in private passenger automobile insurance

The exemption of the insurance industry from federal antitrust law has generated some controversy, particularly in light of the well-publicized price and availability crises in certain lines of insurance. Antitrust restrictions in the United States are generally based on the assumption that high levels of concentration in an industry will make it more likely that firms will collude to raise prices and restrict supply, resulting in higher prices for consumers. This study examines the relationship between profitability and market structure in automobile insurance and tests for the existence of a positive relationship between concentration and performance. The results of the analysis show a significant positive impact of concentration on profitability for combined liability and physical damage lines in private passenger automobile insurance for the period 1984 through 1992. Differences in rate regulation across states are not found to impact profitability.