Returns to Scale in the Swedish Property-Liability Insurance Industry

Economies of Scale in Italian Non-Life Insurance

“…as Doherty (1981) pointed out, it is not consistent with the economic view of the insurance company as a supplier of contingent claims: under this view, claims paid would provide a better measure of scale, being an ex-post proxy for the true output measure, i. e. the expected value of claims paid; it may entail a simultaneity bias in the equation, as premiums are made up of expected claims plus profit and costs, which may lead to a downward bias on the coefficient of premiums in the cost function, and thus to an understatement of the importance of scale economies (see Skogh, 1982 and1986). Geehan (1977) and Braeutigam and Pauly (1986) have pointed out further econometric pitfalls encountered when making use of premiums.…”

Scale and Scope Economies in the Canadian Property and Casualty Insurance Industry

“…Outreville (1987) found increasing returns to scale, while Dubois (1988) observed constant returns to scale. Skogh (1982), using claims as the measure of output, detected economies of scale in the Swedish property/casualty insurance sector in 1977. Like Skogh, Doherty (1981) used claims as the measure of output in Canada to find evidence in favour of significant size efficiency.…”

“…The measure of output most often used in current studies is premium income (Joskow: 1973, Johnson, Flanigan and Weisbart: 1982, Cho: 1988. However, Skogh (1982) showed that this approach involves a serious bias: premium income adequately measures output only under constant returns to scale in a long run competitive equilibrium. As one of the goals of this study is to test for the existence of constant returns to scale, it would be inappropriate to measure output by premium income.…”

“…This study follows Skogh's (1982) recommendation7 to use claims as the measure of the volume of output. However, we also computed scale and scope economies indicators using net premium income as the measure of output.…”

“…This permits us to check if the premium income measure of size used in earlier studies produces downward-biased estimates of economies of scale (Skogh: 1982).…”