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Assessing the Efficiency of an Insurance Provider - A Measurement Error Approach

  • Mario JAMETTI
  • Thomas VON UNGERN-STERNBERG

The purpose of this paper is to compare the cost efficiency of private and public property insurance providers in Switzerland. The most commonly used measure for this kind of exercise is the Claims / Premium ratio. We argue that this measure may give strongly biased results. We develop a simple model to test whether the elasticity of premiums with respect to claims is less than unity. We address the fact that premium income is relatively stable across time, while claims are not, using estimation techniques that correct for measurement error. We develop tools to cope with heteroskedasticity in such measurement errors and apply the model to a data set on 19 firms in housing insurance markets in Switzerland. We show that the public insurance providers are about 20 % more cost efficient than their private counterparts.

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Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 03.05.

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Length: 24 pages
Date of creation: Mar 2003
Date of revision:
Publication status: Published in: The Geneva Risk and Insurance Review, vol.30 (1), pp. 15-34
Handle: RePEc:lau:crdeep:03.05
Contact details of provider: Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.20
Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
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  1. Meijer, Erik & Wansbeek, Tom, 2000. "Measurement error in a single regressor," Economics Letters, Elsevier, vol. 69(3), pages 277-284, December.
  2. Epple, Karl & Schafer, Reinhard, 1996. "The transition from monopoly to competition: The case of housing insurance in Baden-Wurttemberg," European Economic Review, Elsevier, vol. 40(3-5), pages 1123-1131, April.
  3. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  4. Ramses H. Abul Naga, 2001. "Galtonian regression of intergenerational income linkages: biased procedures, a new estimator and mean-square error comparisons," LSE Research Online Documents on Economics 6564, London School of Economics and Political Science, LSE Library.
  5. Felder, Stefan, 1996. "Fire insurance in Germany: A comparison of price-performance between state monopolies and competitive regions," European Economic Review, Elsevier, vol. 40(3-5), pages 1133-1141, April.
  6. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
  7. repec:dgr:rugsom:00f14 is not listed on IDEAS
  8. von Ungern-Sternberg, Thomas, 2004. "Efficient Monopolies: The Limits of Competition in the European Property Insurance Market," OUP Catalogue, Oxford University Press, number 9780199268818.
  9. Thomas VON UNGERN-STERNBERG, 1995. "Kritische Überlegungen zu dem Gutachten von Professor Schips über die kantonalen Gebäudeversicherungsmonopole," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9502, Université de Lausanne, Faculté des HEC, DEEP.
  10. Thomas VON UNGERN-STERNBERG, 1994. "Die kantonalen Gebäudeversicherungen. Eine ökonomische Analyse," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9405, Université de Lausanne, Faculté des HEC, DEEP.
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