Rating Liberalization and Efficiency: Evidence from the Property-Liability Insurance Industry

Ming-Kuo Chen and Chi-Hung Chang ()
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Ming-Kuo Chen: Department of Insurance and Finance Management, Chaoyang University of Technology, Taichung 413310, Taiwan
Chi-Hung Chang: Department of Insurance and Finance, National Taichung University of Science and Technology, Taichung 403027, Taiwan

JRFM, 2025, vol. 18, issue 5, 1-17

Abstract: The property-liability insurance market in Taiwan has implemented three-stage deregulation on rate-making since 2002. This research investigates whether the rating liberalization brought about improvements in efficiency and productivity of the property-liability insurance market. Using data on property-liability insurers in Taiwan over 2001 to 2019 and employing data envelopment analysis, we show that technical, cost, and revenue efficiencies have improved after rating liberalization. Post-liberalization productivity has improved as well, and the decomposition of productivity change demonstrates that change in technology contributes most to productivity improvement at the inception of liberalization, and the contribution of efficiency improvement follows when rating controls are further released. Further analyses reveal that technical and revenue efficiency rose in the third stage of liberalization and cost efficiency improved in the second and third stages. Our findings suggest that the removal of price controls creates an operating environment with less restrictions and thus favors progress in efficiency of the property-liability insurance market.

Keywords: rating liberalization; technical efficiency; cost efficiency; revenue efficiency; Malmquist productivity index; technical change (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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