Equilibrium in Marine Mutual Insurance Markets with Convex Operating Costs

Knut Aase

No 2005/10, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: The paper analyzes the possibility of reaching an equilibrium in a market of marine mutual insurance syndicates, called Protection and Indemnity Clubs, or P&I Clubs for short, displaying economies of scale. Our analysis rationalizes some empirically documented findings, and points out an interesting future scenario. We find an equilibrium in a market of mutual marine insurers, in which some smaller clubs, having operating costs above average, may grow larger relative to the other clubs in order to become more cost effective, and where medium to larger cost efficient clubs may stay unchanged or some even downsize relative to the others. Some of the very large clubs suffering from diseconomies of scale may have a motive to further increase relative to the other clubs. According to observations, most clubs have, during the last decade, expanded significantly in size measured by gross tonnage of entered ships, some clubs have merged, but very few seem to have decreased their underwriting activity, in particular none of the really large ones. The analysis points to the following future scenario: The small and the medium to large clubs converge in size, while there is a possibility for some very large clubs to be present as well.

Keywords: Marine Insurance; syndicated market; P&I clubs; equilibrium; economy of scale; diseconomy of scale (search for similar items in EconPapers)
JEL-codes: D50 G22 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2005-11-30
New Economics Papers: this item is included in nep-fin and nep-ias
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Related works:
Journal Article: Equilibrium in Marine Mutual Insurance Markets with Convex Operating Costs (2007)
Working Paper: Equilibrium in Marine Mutual Insurance Markets with Convex Operating Costs (2005)
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