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The Effects of Liberalization and Deregulation on the Performance of Financial Institutions: The Case of the German Life Insurance Market

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Author Info
Lucinda Trigo Gamarra () (University of Rostock)

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Abstract

The German insurance market was liberalized in 1994 by the introduction of the ‘single passport’ allowing European insurers to operate throughout the entire European Union. The European directive put also an end to price and insurance contract terms regulation. These measures were meant for removing the obstacles to competition within and between the insurance markets of the member states aiming at an increased efficiency of the European insurance markets. We analyze to which extent this aim has been achieved in the German life insurance market. The development of market performance is measured by changes in technical cost and profit efficiency levels since the liberalization, as well as a measurement of technological change. Technical cost efficiency levels are estimated by applying a stochastic “true” fixed effects distance frontier (Greene, 2005). Non-standard profit efficiency is derived in a second step following Kumbakhar (2006). According to our results, the industry experienced positive total factor productivity (TFP) growth during the observation period, which is mainly driven by substantial positive technological change. Technical cost efficiency and profit efficiency remained stable on average, but significant positive scale efficiency change can be found indicating that market consolidation in the presence of increasing returns to scale led to efficiency gains of the firms.

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File URL: http://www.wiwi.uni-rostock.de/fileadmin/Institute/VWL/VWL-Institut/RePEc/pdf/wp093thuenen.pdf
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Publisher Info
Paper provided by University of Rostock, Institute of Economics, Germany in its series Thuenen-Series of Applied Economic Theory with number 93.

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Length: 44 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:ros:wpaper:93

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Related research
Keywords: Insurance markets; Total factor productivity growth; Stochastic Frontier Analysis;

Other versions of this item:

Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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    Other versions:
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