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Performance Benchmarking in Financial Services: Evidence from the UK Life Insurance Industry

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  • Paul J. M. Klumpes

    (Nottingham University)

Abstract

Performance benchmarking is applied to measure the profit and cost efficiency of UK life insurance products that are required by "polarization" regulations to be distributed through either independent financial advisers (IFA) or appointed and/or company representatives (AR/CR). Relative profit and cost efficiencies are assessed using the fourier flexible form econometric procedure and are based on detailed product-level disclosure information. United Kingdom life insurance firms employing IFA distribution systems are found to be more cost and profit inefficient than AR/CR firms. The results imply that polarization exacerbated product mis-selling practices, even after controlling for the effects of organizational form and size.

Suggested Citation

  • Paul J. M. Klumpes, 2004. "Performance Benchmarking in Financial Services: Evidence from the UK Life Insurance Industry," The Journal of Business, University of Chicago Press, vol. 77(2), pages 257-274, April.
    • Handle: RePEc:ucp:jnlbus:v:77:y:2004:i:2:p:257-274
    DOI: 10.1086/381281
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    Cited by:

    1. Augusto Felício, J. & Rodrigues, Ricardo, 2015. "Organizational factors and customers' motivation effect on insurance companies' performance," Journal of Business Research, Elsevier, vol. 68(7), pages 1622-1629.
    2. Shuji Yao & Zhongwei Han & Dan Luo, 2010. "Performance of the Chinese Insurance Industry under Economic Reforms," Books, Edward Elgar Publishing, number 12788.
    3. Wise William, 2020. "The Importance of the Efficiency of Mutual Life Insurers: A Comparison to Stock Life Insurers," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 474-505, June.
    4. Norashikin Ismail & Prof. Dr. Datuk Syed Othman Alhabshi & Prof. Obiyathulla Bacha, 2011. "Organizational Form And Efficiency: The Coexistence Of Family Takaful And Life Insurance In Malaysia," Journal of Global Business and Economics, Global Research Agency, vol. 3(1), pages 122-137, July.
    5. Jacob A. Bikker, 2017. "Performance of the life insurance industry under pressure: efficiency, competition and consolidation," Chapters, in: Jacob A. Bikker & Laura Spierdijk (ed.), Handbook of Competition in Banking and Finance, chapter 9, pages 152-182, Edward Elgar Publishing.
    6. J. Cummins & Georges Dionne & Robert Gagné & A. Nouira, 2009. "Efficiency of insurance firms with endogenous risk management and financial intermediation activities," Journal of Productivity Analysis, Springer, vol. 32(2), pages 145-159, October.
    7. Jacob A. Bikker, 2017. "Performance of the life insurance industry under pressure: efficiency, competition and consolidation," Chapters, in: Jacob A. Bikker & Laura Spierdijk (ed.), Handbook of Competition in Banking and Finance, chapter 9, pages 152-182, Edward Elgar Publishing.
    8. Chrysovalantis Gaganis & Iftekhar Hasan & Fotios Pasiouras, 2013. "Efficiency and stock returns: evidence from the insurance industry," Journal of Productivity Analysis, Springer, vol. 40(3), pages 429-442, December.
    9. Trigo Gamarra, Lucinda, 2007. "Does the product quality hypothesis hold true? Service quality differences between independent and exclusive insurance agents," Thuenen-Series of Applied Economic Theory 76, University of Rostock, Institute of Economics.
    10. Trigo Gamarra, Lucinda, 2007. "Single- versus multi-channel distribution strategies in the German life insurance market: A cost and profit efficiency analysis," Thuenen-Series of Applied Economic Theory 81, University of Rostock, Institute of Economics.
    11. Rubio-Misas, María, 2009. "Productividad y eficiencia de las Mutualidades de Previsión Social/Productivity and Efficiency of Social Benefit Institutions," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 27, pages 571(30á)-57, Agosto.
    12. Ибрагимова Найля Мурадовна, 2015. "Эмпирическая Оценка Эффективности Ндфл И Ндс В Узбекистане," Higher School of Economics Economic Journal Экономический журнал Высшей школы экономики, CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Национальный исследовательский университет «Высшая школа экономики», vol. 19(1), pages 81-103.
    13. Jiří Šindelář & Michal Erben, . "Does Distribution Growth Affect the Insurers' Asset Allocation in Life Insurance? The Case of Central Europe," Prague Economic Papers, Prague University of Economics and Business, vol. 0.
    14. repec:zbw:bofrdp:2013_014 is not listed on IDEAS
    15. Jarraya, Bilel & Bouri, Abdelfettah, 2012. "Efficiency concept and investigations in insurance industry: A survey," MPRA Paper 53544, University Library of Munich, Germany, revised 2013.
    16. Jiří Šindelář & Michal Erben, 2021. "Does Distribution Growth Affect the Insurers' Asset Allocation in Life Insurance? The Case of Central Europe," Prague Economic Papers, Prague University of Economics and Business, vol. 2021(1), pages 20-36.
    17. Yao, Shujie & Han, Zhongwei & Feng, Genfu, 2007. "On technical efficiency of China's insurance industry after WTO accession," China Economic Review, Elsevier, vol. 18(1), pages 66-86.
    18. J. Cummins & Xiaoying Xie, 2013. "Efficiency, productivity, and scale economies in the U.S. property-liability insurance industry," Journal of Productivity Analysis, Springer, vol. 39(2), pages 141-164, April.

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