Performance of the Dutch non-life insurance industry: competition, efficiency and focus
AbstractThis paper investigates competition in the Dutch non-life insurance industry indirectly by measuring scale economies and X-inefficiency, assuming that strong competition would force insurance firms to exploit unused scale economies and to push down inefficiencies. We observe substantial economies of scale (on average 11%) that are larger for smaller firms. Despite considerable consolidation in the industry over the last decade, scale economies have increased, as the optimal scale has outgrown the actual one. Comparing estimates across aggregation levels, we find that scale economies are smaller for groups and lines of business than they are for firms. Besides scale, focus and organizational form are important cost determinants as well: generally, specialized insurers have lower costs and face greater economies of scale. Estimates of thick frontier efficiency point to huge cost differences across firms and within lines of business.Overall, our results suggest that there is a lack of competitive pressure in the Dutch non-life insurance industry.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 164.
Date of creation: Jan 2008
Date of revision:
Non-life insurance; economies of scale; market structure; concentration; competition; X-efficiency; total cost function; aggregation: insurance groups; firms and lines of business;
Other versions of this item:
- J.A. Bikker & J. Gorter, 2008. "Performance of the Dutch non-life insurance industry: competition, efficiency and focus," Working Papers 08-01, Utrecht School of Economics.
- D4 - Microeconomics - - Market Structure and Pricing
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-19 (All new papers)
- NEP-COM-2008-01-19 (Industrial Competition)
- NEP-CSE-2008-01-19 (Economics of Strategic Management)
- NEP-EEC-2008-01-19 (European Economics)
- NEP-EFF-2008-01-19 (Efficiency & Productivity)
- NEP-IAS-2008-01-19 (Insurance Economics)
- NEP-MIC-2008-01-19 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- J. A. Bikker & M. van Leuvensteijn, 2008. "Competition and efficiency in the Dutch life insurance industry," Applied Economics, Taylor & Francis Journals, vol. 40(16), pages 2063-2084.
- J. David Cummins & Mary A. Weiss & Hongmin Zi, 1998.
"Organizational form and efficiency: an analysis of stock and mutual property-liability insurers,"
98-19, Federal Reserve Bank of Philadelphia.
- J. David Cummins & Mary A. Weiss & Hongmin Zi, 1998. "Organizational Form and Efficiency: An Analysis of Stock and Mutual Property-Liability Insurers," Center for Financial Institutions Working Papers 97-02, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Loretta J. Mester, 1989.
"Testing for expense preference behavior: mutual versus stock savings and loans,"
89-27, Federal Reserve Bank of Philadelphia.
- Loretta J. Mester, 1989. "Testing for Expense Preference Behavior: Mutual versus Stock Savings and Loans," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 483-498, Winter.
- J.A. Bikker, 2001.
"Efficiency and cost differences across countries in a unified European banking market,"
Research Series Supervision (discontinued)
34, Netherlands Central Bank, Directorate Supervision.
- J.A. Bikker, 2003. "Efficiency and Cost Differences across Countries in a Unified EuropeanBanking Market," DNB Staff Reports (discontinued) 87, Netherlands Central Bank.
- Manning, Willard G. & Mullahy, John, 2001.
"Estimating log models: to transform or not to transform?,"
Journal of Health Economics,
Elsevier, vol. 20(4), pages 461-494, July.
- Willard G. Manning & John Mullahy, 1999. "Estimating Log Models: To Transform or Not to Transform?," NBER Technical Working Papers 0246, National Bureau of Economic Research, Inc.
- Yuengert, Andrew M., 1993. "The measurement of efficiency in life insurance: Estimates of a mixed normal-gamma error model," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 483-496, April.
- Hanweck, Gerald A. & Hogan, Arthur M. B., 1996. "The structure of the property/casualty insurance industry," Journal of Economics and Business, Elsevier, vol. 48(2), pages 141-155, May.
- Fecher, F. & Kessler, D. & Perelman, S. & Pestieau, P., 1991.
"Productive performance of the french insurance industry,"
CORE Discussion Papers
1991025, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- F. Fecher & D. Kessler & S. Perelman & P. Pestieau, 1993. "Productive performance of the French insurance industry," Journal of Productivity Analysis, Springer, vol. 4(1), pages 77-93, June.
- Fecher, F. & Kessler, D. & Perelman, S. & Pestieau, P., . "Productive performance of the French insurance industry," CORE Discussion Papers RP -1043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Toivanen, Otto, 1997. "Economies of scale and scope in the Finnish non-life insurance industry," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 759-779, June.
- Cummins, J. David & Weiss, Mary A., 1993. "Measuring cost efficiency in the property-liability insurance industry," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 463-481, April.
- Kolari, James & Zardkoohi, Asghar, 1990. " Economies of Scale and Scope in Thrift Institutions: The Case of Finnish Cooperative and Savings Banks," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(3), pages 437-51.
- Geraldine Kaye, 1991. "Economies of Scale in UK Life Insurance Companies: An Empirical Approach," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 16(3), pages 302-314, July.
- J.A. Bikker, 1999.
"Efficiency in the European banking industry: an exploratory analysis to rank countries,"
Research Series Supervision (discontinued)
18, Netherlands Central Bank, Directorate Supervision.
- Jacob A. Bikker, 2001. "Efficiency in the European banking industry: an exploratory analysis to rank contries," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 17.
- Berger, Allen N. & Humphrey, David B., 1991.
"The dominance of inefficiencies over scale and product mix economies in banking,"
Journal of Monetary Economics,
Elsevier, vol. 28(1), pages 117-148, August.
- Allen N. Berger & David B. Humphrey, 1990. "The dominance of inefficiencies over scale and product mix economies in banking," Finance and Economics Discussion Series 107, Board of Governors of the Federal Reserve System (U.S.).
- F Fecher & S Perelman & P Pestieau, 1991. "Scale Economies and Performance in the French Insurance Industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 16(3), pages 315-326, July.
- J. David Cummins & Maria Rubio-Misas, 2001. "Deregulation, Consolidation, and Efficiency: Evidence From the Spanish Insurance Industry," Center for Financial Institutions Working Papers 02-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Jean Marc Suret, 1991. "Scale and Scope Economies in the Canadian Property and Casualty Insurance Industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 16(2), pages 236-256, April.
- Yukiko Hirao & Tomoo Inoue, 2004. "On the Cost Structure of the Japanese Property-Casualty Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 501-530.
- Andrew M. Yuengert, 1993. "The measurement of efficiency in life insurance estimates of a mixed normal-gamma error model," Research Paper 9308, Federal Reserve Bank of New York.
- J. David Cummins & Mary A. Weiss, 1998. "Analyzing Firm Performance in the Insurance Industry Using Frontier Efficiency Methods," Center for Financial Institutions Working Papers 98-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Trigo Gamarra, Lucinda, 2008. "The effects of liberalization and deregulation on the performance of financial institutions: The case of the German life insurance market," Thuenen-Series of Applied Economic Theory 93, University of Rostock, Institute of Economics.
- Huang, Wei & Eling, Martin, 2013. "An efficiency comparison of the non-life insurance industry in the BRIC countries," European Journal of Operational Research, Elsevier, vol. 226(3), pages 577-591.
- J.A. Bikker & Laura Spierdijk, 2009. "Measuring and explaining competition in the financial sector," Working Papers 09-01, Utrecht School of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rob Vet).
If references are entirely missing, you can add them using this form.