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The Effects of Economies of Scale and Diversification on the Cost Structure of the Malaysian Non-life Insurance Industry

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  • Yin Choo Yap

    (Nanzan University)

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    Abstract

    Using a sample of Malaysian non-life insurers over the period 2000-2007, I develop and test a model that explains the expense ratio as a function of output level, line-of-business diversification and other variables. Using various proxies for scale and line-of-business diversification, the empirical results show the existence of an interactive and non-linear relationship with cost. The findings suggest that there is no single minimum efficient scale level for all insurers; rather, it is contingent on the insurer's degree of line-of-business diversification and vice versa. I also find that costs for newly consolidated insurers and motor insurance are relatively higher and fail to find evidence that foreign-owned insurers or foreign joint venture insurers are more cost efficient.

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    Bibliographic Info

    Article provided by De Gruyter in its journal Asia-Pacific Journal of Risk and Insurance.

    Volume (Year): 4 (2009)
    Issue (Month): 1 (November)
    Pages: 1-29

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    Handle: RePEc:bpj:apjrin:v:4:y:2009:i:1:n:3

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