Competition and efficiency in the Dutch life insurance industry

Jacob Bikker () and Michiel Van Leuvensteijn

Applied Economics, 2008, vol. 40, issue 16, 2063-2084

Abstract: The lack of available prices in the Dutch life insurance industry makes competition an elusive concept that defies direct observation. Therefore, this article investigates competition by analysing several factors which may affect the competitive nature of a market and various indirect measurement approaches. After discussing various supply and demand factors which may constitute a so-called tight oligopoly, we establish the existence of scale economies and the importance of cost X-inefficiency, since severe competition would force firms to exploit available scale economies and to reduce X-inefficiencies. Both scale economies and X-inefficiencies turn out to be substantial, although more or less comparable to those found for insurers in other countries and to other financial institutions. Further, we apply the Boone indicator, a novel approach to measuring the effects of competition. This indicator points to limited competition in comparison to other sectors in the Netherlands. Further investigations of submarkets should reveal where policy measures in order to promote competition might be appropriate.

Date: 2008
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DOI: 10.1080/00036840600949298

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