The Efficiency of the European Non-Life Insurance: CEO Power, Macroeconomic, and Market Characteristics Impact

Abstract

Abstract:A numbers of studies focusing on the determinant of the insurance market efficiency have increased in the last decade. In fact, many factors, like the CEO's power, can influence the efficiency in the insurance firm. The purpose of this research is to analyze the relationship between efficiency, measured by the cost function using the stochastic frontier approach (SFA) methodologies, and the market structure, as well as the macroeconomic variables. In addition, it focuses on identifying the impact of the integration of the CEO power variable in the cost function on this relation. The result shows that after the consideration of the CEO power score in the cost efficiency, the relation between insurance efficiency and the determinant of market development, as well as the domestic economy, has changed and become more significant. The result also shows that the firms become more efficient and more profitable with a higher concentration ratio and this is in accordance with the structure-conduct-performance (SCP) theory.

Seasonal Analysis of Total Premiums Written of the Motor Third Party Liability Insurance in The Czech Republic In Years 2000 - 2016 from the Marketing Perspective

“…There is a number of studies that emphasize the need to analyse and monitor the demand for insurance products and its variability over time with respect to use of the marketing tools and campaigns [5,6]. Many businesses find that their working capital is fluctuating over time due to fluctuations in demand and seasonality of demand [7].…”

Efficiency measurement and efficiency's convergence in the european insurance markets

“…This difference is possibly attributed to the larger sample we use, since Zhang and Bartles (1998) showed that the larger the sample, the lower is the average efficiency scores under the ceteris paribus hypothesis, and/or the different time period of each study. Bahloul and Bouri (2016) also estimated cost efficiency for a balanced panel of 125 non-life insurance companies of seven major European countries for the period 2002-2008 using SFA methodology. Adopting the Flexible Fourier form for the cost function, they found that their sample had an average cost efficiency of 0.692 for the whole sample period.…”

“…The procedures that are followed for the estimation of the stochastic cost frontiers in the presence of panel data are identical with those developed for the estimation of stochastic production frontier models. We assume that we have a panel of I producers for T time periods 9 . We also assume that cost efficiency is time-invariant and that the deterministic kernel of the stochastic cost frontier takes the single-output Cobb-Douglas form.…”

“…9. Beta convergence for profit efficiency for the Life European Insurers ==> Significance at 1%, 5%, 10% level.…”

“…9 shows the maximum-likelihood estimates of the cost frontier for the European life insurance sector. Both outputs (net premiums written and investments) have the expected positive signs and are statistically significant at 1% level ( 0.97920 and 0.92593 respectively).…”