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Does Bancassurance Increase the Efficiency of the Financial Industry? A Case for Korea

Author

Listed:
  • Lee Soon-Jae

    (Sejong University, Korea)

  • Jung Sechang

    (Hongik University, Korea)

  • Lee Bong-Joo

    (Kyung Hee University, Korea)

Abstract

This paper aims to investigate the effects of bancassurance in Korea and to find the best bancassurance partners in terms of cost, revenue, and profit efficiency. Thick frontier and scenario analyses are used to measure the efficiency change. We find that foreign and small- and medium-sized insurers can gain cost and profit efficiency through bancassurance, but lose revenue efficiency. Large insurers can realize cost efficiency, but lose revenue and profit efficiency. Banks can realize revenue and profit efficiency, but lose cost efficiency. For banks, large insurers are the best bancassurance partners due to product relatedness and good reputation.

Suggested Citation

  • Lee Soon-Jae & Jung Sechang & Lee Bong-Joo, 2006. "Does Bancassurance Increase the Efficiency of the Financial Industry? A Case for Korea," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 1(2), pages 1-17, February.
  • Handle: RePEc:bpj:apjrin:v:1:y:2006:i:2:n:5
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    References listed on IDEAS

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    6. Berger, Allen N. & Hancock, Diana & Humphrey, David B., 1993. "Bank efficiency derived from the profit function," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 317-347, April.
    7. John H. Boyd & Stanley L. Graham, 1988. "The profitability and risk effects of allowing bank holding companies to merge with other financial firms: a simulation study," Proceedings 213, Federal Reserve Bank of Chicago.
    8. Boyd, John H. & Graham, Stanley L. & Hewitt, R. Shawn, 1993. "Bank holding company mergers with nonbank financial firms: Effects on the risk of failure," Journal of Banking & Finance, Elsevier, vol. 17(1), pages 43-63, February.
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