Determinants of Insurers' Performance in Risk Pooling, Risk Management, and Financial Intermediation Activities
AbstractCorporate finance theory predicts that firms' characteristics affect agency costs and hence their efficiency. Cummins et al. (2006) have proposed a cost function specification that measures separately insurer efficiency in handling risk pooling, risk management, and financial intermediation functions. We investigate the insurer characteristics that determine these efficiencies. Our empirical results show that mutuals outperform stock insurers in handling the three functions. Independent agents and high capitalization reduce the cost efficiency of risk pooling. Certain characteristics such as being a group of affiliated insurers, handling a higher volume of business in commercial lines, assuming more reinsurance or investing a higher proporotion of assets in bonds, do significantly increase insurers' efficiency in risk management and financial intermediation.
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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 0715.
Date of creation: 2007
Date of revision:
Risk pooling; risk management; financial intermediation; property-liability insurance; efficiency; agency costs;
Other versions of this item:
- Georges Dionne & Robert Gagné & Abdelhakim Nouira, 2007. "Determinants of Insurers’ Performance in Risk Pooling, Risk Management, and Financial Intermediation Activities," Cahiers de recherche 07-03, HEC Montréal, Institut d'économie appliquée.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-11 (All new papers)
- NEP-EFF-2007-06-11 (Efficiency & Productivity)
- NEP-IAS-2007-06-11 (Insurance Economics)
- NEP-RMG-2007-06-11 (Risk Management)
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