Service Quality in Private Passenger Automobile Insurance

This study extends previous research on service quality in the private passenger automobile insurance industry by providing empirical evidence using an improved proxy for the value of service. The endogeneity of the value of service is recognized and treated statistically with the two-stage least squares approach. The empirical model also includes a number of control variables that affect the service quality of an insurer. The measures of quality are customer satisfaction scores that are collected from two consumer surveys: the Consumer Reports Survey and the DALBAR Survey. Of critical interest in the analysis of these two different surveys is their respective treatment of claims problems and non-claims problems. For customers who have filed claims with their insurers, more weight is given to the value of service they perceive. In particular, how fast their insurers handle their claims is much more important to these customers than to the general population of policyholders. In contrast, for general consumers of automobile insurance, their satisfaction is based on a number of factors. Specifically, the insurer’s capacity to provide service, output in auto lines, advertising expenditures, and distribution system all affect the quality of service perceived by consumers.