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Efficiency and Demutualization: Evidence From the U.S. Life Insurance Industry in the 1980s and 1990s

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  • Vivian Jeng
  • Gene C. Lai
  • Michael J. McNamara
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    Abstract

    This article examines the efficiency changes of U.S. life insurers before and after demutualization in the 1980s and 1990s. We use two frontier approaches (the value-added approach and the financial intermediary approach) to measure the efficiency changes. In addition, we use Malmquist indices to investigate the efficiency and productivity change of converted life insurers over time. The results using the value-added approach indicate that demutualized life insurers improve their efficiency before demutualization. On the other hand, the evidence using the financial intermediary approach shows the efficiency of the demutualized life insurers relative to mutual control insurers deteriorates before demutualization and improves after conversion. The difference in the results between the two approaches is due to the fact that the financial intermediary approach considers financial conditions. The results of both approaches suggest that there is no efficiency improvement after demutualization relative to stock control insurers. There is, however, efficiency improvement relative to mutual control insurers when the financial intermediary approach is used. Copyright The Journal of Risk and Insurance, 2007.

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    Bibliographic Info

    Article provided by The American Risk and Insurance Association in its journal Journal of Risk & Insurance.

    Volume (Year): 74 (2007)
    Issue (Month): 3 ()
    Pages: 683-711

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    Handle: RePEc:bla:jrinsu:v:74:y:2007:i:3:p:683-711

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    Cited by:
    1. J.A. Bikker, 2012. "Performance of the life insurance industry under pressure: efficiency, competition and consolidation," Working Papers 12-19, Utrecht School of Economics.
    2. Leverty, J. Tyler & Grace, Martin F., 2010. "The robustness of output measures in property-liability insurance efficiency studies," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1510-1524, July.
    3. Biener, Christian & Eling, Martin, 2012. "Organization and efficiency in the international insurance industry: A cross-frontier analysis," European Journal of Operational Research, Elsevier, vol. 221(2), pages 454-468.
    4. Jarraya, Bilel & Bouri, Abdelfettah, 2012. "Efficiency concept and investigations in insurance industry: A survey," MPRA Paper 53544, University Library of Munich, Germany, revised 2013.

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