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

Author

Listed:
  • Jacob Bikker
  • Janko 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.

Suggested Citation

  • 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.
  • Handle: RePEc:dnb:dnbwpp:164
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    References listed on IDEAS

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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 & L. Spierdijk, 2009. "Measuring and explaining competition in the financial sector," Working Papers 09-01, Utrecht School of Economics.

    More about this item

    Keywords

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

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • 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

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