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.
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Bibliographic InfoPaper provided by Utrecht School of Economics in its series Working Papers with number 08-01.
Length: 26 pages
Date of creation: 2008
Date of revision:
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Other versions of this item:
- Jacob Bikker & Janko Gorter, 2008. "Performance of the Dutch non-life insurance industry: competition, efficiency and focus," DNB Working Papers 164, Netherlands Central Bank, Research Department.
- 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-2008-02-09 (All new papers)
- NEP-COM-2008-02-09 (Industrial Competition)
- NEP-CSE-2008-02-09 (Economics of Strategic Management)
- NEP-EFF-2008-02-09 (Efficiency & Productivity)
- NEP-IAS-2008-02-09 (Insurance Economics)
- NEP-MIC-2008-02-09 (Microeconomics)
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