Conversion and Efficiency Performance Changes: Evidence from the U.S. Property-Liability Insurance Industry

Lih-Ru Chen (), Gene C Lai () and Jennifer L Wang ()
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Lih-Ru Chen: Department of Risk Management and Insurance, Shih Chien University, Taipei, Taiwan.
Gene C Lai: 1] Department of Finance and Management Science, Washington State University, USA.[2] Risk and Insurance Research Center (RIRC), National Cheng-Chi University, Taipei, Taiwan.
Jennifer L Wang: Department of Risk Management and Insurance, Risk and Insurance Research Center (RIRC), National Cheng-Chi University, Taipei, Taiwan.

The Geneva Risk and Insurance Review, 2011, vol. 36, issue 1, 35 pages

Abstract: This study investigates whether the conversion of U.S. property-liability insurers improves their efficiency performance before and after the conversion. We estimate relative efficiency of converting insurers and control insurers using data envelopment analysis. The Malmquist analysis is also used to measure changes in efficiency pre- and post-conversion. The evidence shows that converting insurers experience larger gains in cost efficiency and total productivity change than mutual control insurers before conversion. In addition, the empirical results indicate that converting insurers improve efficiency after conversion. These results are robust with respect to both the value-added and the financial intermediary approaches. The overall results support the efficiency hypothesis proposed by Mayers and Smith (1986).

Date: 2011
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