The Effects of Economies of Scale and Diversification on the Cost Structure of the Malaysian Non-life Insurance Industry

Yin Choo Yap
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Yin Choo Yap: Nanzan University

Asia-Pacific Journal of Risk and Insurance, 2009, vol. 4, issue 1, 29

Abstract: Using a sample of Malaysian non-life insurers over the period 2000-2007, I develop and test a model that explains the expense ratio as a function of output level, line-of-business diversification and other variables. Using various proxies for scale and line-of-business diversification, the empirical results show the existence of an interactive and non-linear relationship with cost. The findings suggest that there is no single minimum efficient scale level for all insurers; rather, it is contingent on the insurer's degree of line-of-business diversification and vice versa. I also find that costs for newly consolidated insurers and motor insurance are relatively higher and fail to find evidence that foreign-owned insurers or foreign joint venture insurers are more cost efficient.

Keywords: economies of scale; expense ratio; line-of-business diversification; Malaysian non-life insurance (search for similar items in EconPapers)
Date: 2009
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DOI: 10.2202/2153-3792.1045

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