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Performance of the Dutch non-life insurance industry: competition, efficiency and focus

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  • J.A. Bikker
  • J. Gorter

Abstract

This 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.

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/31425/08-01.pdf
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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 08-01.

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Length: 26 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:use:tkiwps:0801

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Related research

Keywords: Non-life insurance; economies of scale; market structure; concentration; competition; X-efficiency; total cost function; aggregation: insurance groups; firms and lines of business;

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References

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  1. 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.
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  12. 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.
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Cited by:
  1. 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.
  2. J.A. Bikker & Laura Spierdijk, 2009. "Measuring and explaining competition in the financial sector," Working Papers 09-01, Utrecht School of Economics.

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