EFFICIENCY OF NON-LIFE INSURANCE COMPANIES AND ITS DETERMINANTS
Abstract
The research evaluates efficiency of non-life insurance companies in Poland from 2002 till 2016 and determines factors affecting it. The stochastic frontier analysis (SFA) method was applied for estimating cost efficiency of 29 insurance companies and the panel data Tobit model for identification of the efficiency determinants. The results of the research showed significant volatility of companies’ efficiency scores changing from 62.5% in 2002 to 65.8% in 2007 and 59.4% in 2016. Efficiency of most companies was low and the average for the sector was driven by a small group of the most efficient entities. The efficiency was positively impacted by the value of company’s gross written premium and acquisition costs, an increase in the profitability and the average wage in the non-life insurance sector and a decrease in the sector’s concentration. Companies operated more efficiently in the environment of declining rates of the economic growth and inflation. These relationships were relevant for the entire sector, as well as for groups of companies characterized with higher and lower efficiency.Downloads
References
Aigner, D., Lovell, C.A., Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics, 6 (1), 21-37.
Barros, P., Barroso, N., Borges, M.R. (2005). Evaluating the Efficiency and Productivity of Insurance Companies with a Malmquist Index: A Case Study for Portugal. Geneva Papers on Risk and Insurance, 30 (2), 244-267.
Bikker, J.A. (2016). Performance of the life insurance industry under pressure: efficiency, competition and consolidation. Risk Management & Insurance Review, 19 (1), 73-104.
Bikker, J.A., Leuvensteijn, M. (2008). Competition and efficiency in the Dutch life insurance industry. Applied Economics, 40, 2063-2084.
Charnes, A, Cooper, W.W., Rhodes, E. (1978). Measuring the Efficiency of Decision Making Units. European Journal of Operational Research, 2, 429-444.
Cummins J.D., Weiss, M.A. (1993). Measuring Cost Efficiency in the Property-Liability Insurance Industry. Journal of Banking and Finance, 17, 463-481.
Cummins, J.D., Rubio-Misas, M. (2006). Deregulation, consolidation, and efficiency: evidence from the Spanish insurance industry. Journal of Money, Credit, and Banking, 38 (2), 323-355.
Cummins, J.D., Zi, H. (1998). Measuring Economic Efficiency of the US Life Insurance Industry: Econometric and Mathematical Programming Techniques. Journal of Productivity Analysis, 10, 131-152.
Davutyan, N., Klumpes, P.J.M. (2007). Consolidation and efficiency in the major European insurance markets. Working Paper, Imperial College, London.
Donni, O., Fecher, F. (1997). Efficiency and Productivity of the Insurance Industry in the OECD Countries. The Geneva Papers on Risk and Insurance, 22 (85), 523-535.
Eling, M., Luhnen, M. (2010). Efficiency in the international insurance industry: A cross-country comparison. Journal of Banking & Finance, 34 (7), 1497-1509.
Fecher, F., Kessler, D., Perelman, S., Pestieau, P. (1993). Productive Performance in the French Insurance Industry. Journal of Productivity Analysis, 4 (1-2), 77-93.
Fenn, P., Vencappa, D., Diacon, S., Klumpes, P., O'Brien, C. (2008). Market structure and the efficiency of European insurance companies: a stochastic frontier analysis. Journal of Banking and Finance, 32 (1), 86-100.
Kozak, S. (2010). Consolidation and efficiency of the non-life insurance sector in Poland. EJPAU 13 (1), #3. Retrieved from: http://www.ejpau.media.pl/volume13/issue1/art-03.html.
Meeusen, W., Broeck, J. (1977). Efficiency estimation from Cobb-Douglas production functions with composed error. International Economic Review, 18 (2), 435-444.
NBP (2015). Financial stability report. July 2015. National Bank of Poland, Warsaw.
NBP (2017). Rozwój system finansowego w Polsce w 2016 r. [Development of the financial system in Poland in 2016]. National Bank of Poland, Warsaw.
Parmeter, Ch.F., Kumbhakar, S.C. (2014). Efficiency Analysis: A Primer on Recent Advances. Foundations and Trends in Econometrics, 7 (3-4), 191-385.
PIU (2012) Annual Report 2011. Polish Insurance Association, Warsaw.
PIU (2017) Annual Report 2016. Polish Insurance Association, Warsaw.
Rai, A. (1996). Cost efficiency of international insurance firms. Journal of Financial Services Research, 10 (3), 213-233.
UOKiK (2018). Raport z badania rynku ubezpieczeń komunikacyjnych [Report on the motor insurance market survey]. Office of Competition and Consumer Protection, Warsaw. Retrieved from: https://uokik.gov.pl/aktualnosci.php?news_id=14487&print=1.
Ustawa z dnia 22 maja 2003 r. o działalności ubezpieczeniowej [Act of 22 May 2003 on insurance activity]. Dz.U. 2003 nr 124, poz. 1051.
Vencappa, D., Fenn P., Diacon, S. (2008). Parametric Decomposition of Total Factor Productivity Growth in the European Insurance Industry: Evidence from Life and Non-Life Companies. Working Paper, Nottingham University.
Weiss, M.A. (1991). Efficiency in the Property-Liability Insurance Industry. Journal of Risk and Insurance, 58, 452-479.
