Optimal Market Share in Automobile Insurance Auction Markets

The automobile insurance industry plays a pivotal role in the financial system, fostering economic stability through effective risk management and consumer confidence. Continuous enhancement in price optimisation not only ensures the sustainability of insurers but also fosters a more competitive, fair, and balanced market, which is vital for a country’s economic development. The objective of this research is to develop a methodology for determining the optimal price offered by insurance firms for automobile policies in an industry where a First Price Sealed Bid auction system operates. A statistical methodology is employed to ascertain the expected value and standard deviation of the policies on offer in the public domain, whereby these values are calculated using a heteroskedastic linear regression estimation methodology. Furthermore, the aforementioned expected values and standard deviation enable the calculation of the value of the cumulative distribution for an optimal price set within the public offer. This study demonstrates that identifying the optimal price that maximizes profits is analogous to establishing an expected market share for each niche automobile policy market. Moreover, the market share can be calculated through a straightforward heteroskedastic linear regression estimation for instances where market shares are below 50%.