Performance of the Dutch non-life insurance industry: competition, efficiency and focus

Jacob Bikker () and Janko Gorter ()

No 08-01, Working Papers from Utrecht School of Economics

Abstract: This paper investigates competition in the Dutch non-life insurance industry indirectly by measuring scale economies and X-inefficiency, assuming that strong competition would force insurance firms to exploit unused scale economies and to push down inefficiencies. We observe substantial economies of scale (on average 11%) that are larger for smaller firms. Despite considerable consolidation in the industry over the last decade, scale economies have increased, as the optimal scale has outgrown the actual one. Comparing estimates across aggregation levels, we find that scale economies are smaller for groups and lines of business than they are for firms. Besides scale, focus and organizational form are important cost determinants as well: generally, specialized insurers have lower costs and face greater economies of scale. Estimates of thick frontier efficiency point to huge cost differences across firms and within lines of business. Overall, our results suggest that there is a lack of competitive pressure in the Dutch non-life insurance industry.

Keywords: Non-life insurance; economies of scale; market structure; concentration; competition; X-efficiency; total cost function; aggregation; insurance groups; firms and lines of business (search for similar items in EconPapers)
Date: 2008-01
New Economics Papers: this item is included in nep-com, nep-cse, nep-eff, nep-ias and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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