Switching Costs and Automobile Insurance Policies in Stockholm County

Abstract: The present thesis aims to estimate and give an understanding of any switching costs, (SCs) in the Stockholm County third party liability insurance policy (TPLIP) market. The SCs are estimated through a model developed by Shy (2002) and the data set contains premiums and market shares from the years 2001–05. The four largest insurance companies in Stockholm County are included in the investigation. These companies are Folksam, If, Länsförsäkringar Stockholm and Trygg-Hansa. In order to provide an additional understanding of any SCs interviews were held with staff, responsible for product and pricing, at each company. SCs as high as 80 percent of the annual premium were found, however, the model might overestimate the SCs. Evidence of different types of SCs was found through the analysis of the interviews. The size and variability of each type of SCs could not be determined. Dependent on how the SCs are measured, they are either higher or lower for customers holding TPLIPs for expensive automobiles compared to customers holding TPLIPs for normal automobiles. The prevalence of SCs in the market is to some extent in line with previous research. The size and variability is, however, not confirmed by previous research.