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Efficiency, Productivity, and Scale Economies in the U.S. Property-Liability Insurance Industry

Author

Listed:
  • Cummins, J. David

    (Temple University)

  • Xie, Xiaoying

    (CA State University)

Abstract

The paper examines efficiency, productivity and scale economies in the U.S. property-liability insurance industry. Productivity change is analyzed using Malmquist indices, and efficiency is estimated using data envelopment analysis (DEA). The results indicate that the majority of firms below median size in the industry are operating with increasing returns to scale, and the majority of firms above median size are operating with decreasing returns to scale. However, a significant number of firms in each size decile have achieved constant returns to scale. Over the sample period, the industry experienced significant gains in total factor productivity, and there is an upward trend in scale and allocative efficiency. More diversified firms, stock insurers, and insurance groups were more likely to achieve efficiency and productivity gains. Higher technology investment is positively related to efficiency and productivity improvements.

Suggested Citation

  • Cummins, J. David & Xie, Xiaoying, 2010. "Efficiency, Productivity, and Scale Economies in the U.S. Property-Liability Insurance Industry," Working Papers 11-08, University of Pennsylvania, Wharton School, Weiss Center.
    • Handle: RePEc:ecl:upafin:11-08
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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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