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

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Author Info
Jacob A. Bikker ()
Janko Gorter ()

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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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Publisher 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: Jan 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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Find related papers by JEL classification:
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
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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References listed on IDEAS
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.:
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    Other versions:
  2. 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. [Downloadable!] (restricted)
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  5. 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. [Downloadable!]
  6. 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. [Downloadable!]
    Other versions:
  7. 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. [Downloadable!] (restricted)
    Other versions:
  8. J. A. Bikker & M. van Leuvensteijn, 2008. "Competition and efficiency in the Dutch life insurance industry," Applied Economics, Taylor and Francis Journals, vol. 40(16), pages 2063-2084. [Downloadable!] (restricted)
  9. 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, Blackwell Publishing, vol. 92(3), pages 437-51.
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    Other versions:
  12. 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. [Downloadable!]
  13. 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).
  14. 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. [Downloadable!] (restricted)
  15. 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. [Downloadable!] (restricted)
  16. 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. [Downloadable!]
  17. 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. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, 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.)

  1. Jacob A. Bikker & Laura Spierdijk, 2009. "Measuring and explaining competition in the financial sector," Working Papers 09-01, Utrecht School of Economics. [Downloadable!]
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