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The effects of liberalization and deregulation on the performance of financial institutions: The case of the German life insurance market

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  • Trigo Gamarra, Lucinda

Abstract

The German insurance market was liberalized in 1994 by the introduction of the 'single passport' allowing European insurers to operate throughout the entire European Union. The European directive put also an end to price and insurance contract terms regulation. These measures were meant for removing the obstacles to competition within and between the insurance markets of the member states aiming at an increased efficiency of the European insurance markets. We analyze to which extent this aim has been achieved in the German life insurance market. The development of market performance is measured by changes in technical cost and profit efficiency levels since the liberalization, as well as a measurement of technological change. Technical cost efficiency levels are estimated by applying a stochastic 'true' fixed effects distance frontier (Greene, 2005). Non-standard profit efficiency is derived in a second step following Kumbakhar (2006). According to our results, the industry experienced positive total factor productivity (TFP) growth during the observation period, which is mainly driven by substantial positive technological change. Technical cost efficiency and profit efficiency remained stable on average, but significant positive scale efficiency change can be found indicating that market consolidation in the presence of increasing returns to scale led to efficiency gains of the firms.

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  • Trigo Gamarra, Lucinda, 2008. "The effects of liberalization and deregulation on the performance of financial institutions: The case of the German life insurance market," Thuenen-Series of Applied Economic Theory 93, University of Rostock, Institute of Economics.
    • Handle: RePEc:zbw:roswps:93
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    2. William WISE, 2018. "The importance of efficiency for life insurer profit: A study of Canadian life insurance companies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(617), W), pages 179-204, Winter.
    3. Stephanie Meyr & Sharon Tennyson, 2015. "Product Ratings as a Market Reaction to Deregulation: Evidence From the German Insurance Market," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 18(1), pages 77-100, March.
    4. Tulus Suryanto & Darul Dimasqy & Reza Ronaldo & Mahjus Ekananda & Teuku Heru Dinata & Indra Tumbelaka, 2020. "The Influence of Liberalization on Innovation, Performance, and Competition Level of Insurance Industry in Indonesia," Sustainability, MDPI, vol. 12(24), pages 1-25, December.
    5. Mohammad Nourani & VGR Chandran & Qian Long Kweh & Wen-Min Lu, 2018. "Measuring Human, Physical and Structural Capital Efficiency Performance of Insurance Companies," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 137(1), pages 281-315, May.

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    More about this item

    Keywords

    Insurance markets; Total factor productivity growth; Stochastic Frontier Analysis;
    All these keywords.

    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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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