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Microinsurance and Efficiency in the Insurance Industry
Type
fundamental research project
Start Date
01 December 2010
End Date
14 December 2012
Status
completed
Keywords
Frontier Efficiency
Productivity
Performance
Data Envelopment Analysis
Stochastic Frontier Analysis
International Insurance
Microinsurance
Agency Theory
Theory of the Firm
Description
The aim of this research project is to write, present and publish three papers on efficiency in international insurance markets and to improve benchmarking techniques, especially those used in the microinsurance industry. Each of the three papers makes at least one unique contribution to the literature, as well as having highly practical implications for insurers, regulators, and national insurance associations. Paper 1 is the first empirical test of the "expense preference" and "managerial discretion" hypotheses in a large cross-country study. It provides new information on the efficiency effects of demutualizations (i.e., the conversion of a mutual insurer into a stock insurer), which have recently become more frequent in the insurance industry, even though their efficiency effects are still a matter of controversy. Paper 2 is the first efficiency analysis of microinsurance schemes, i.e., the provision, by nonprofit providers, of insurance to the very poor in developing countries. The paper introduces a new, powerful benchmarking tool specifically designed to overcome the limitations of performance indicators currently used in the microinsurance industry. Paper 3 combines the data and methods developed in Papers 1 and 2 and compares the competitiveness of for-profit and nonprofit insurance providers in developing markets. This is especially relevant since donor or government subsidies are usually of limited duration, making microinsurance programs subject to the same economic and market forces as are for-profit insurers. Given the important social function of microinsurance, the project contributes not only to academia and practice, but to society as a whole.
Leader contributor(s)
Member contributor(s)
Funder(s)
Topic(s)
Finance
Insurance
Risk Management
Method(s)
Theoretical and empirical research in insurance economics and management
Range
HSG Internal
Range (De)
HSG Intern
Division(s)
Eprints ID
207882
3 results
Now showing
1 - 3 of 3
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PublicationInsurability in Microinsurance Markets: An Analysis of Problems and Potential SolutionsThis paper provides a comprehensive analysis of the insurability of risks in microinsurance markets. Our aim is to enhance the understanding of impediments to and facilitators of microinsurance from an economic perspective and outline potential solutions. The motivation for conducting this analysis arises from two important aspects. (1) Despite strong growth of microinsurance markets in recent years, more than 90 per cent of the poor population in developing countries have limited or no access to insurance. (2) Industry practitioners frequently highlight problems in the insurability of risks that hinder the development of microinsurance. We review 131 papers and find that the most severe problems stem from insufficient resources for risk evaluation, small size of insurance groups, information asymmetries and the size of the insurance premium. On the basis of the analysis, we discuss a number of potential solutions such as, for example, a cooperative microinsurance architecture.Type: journal articleJournal: Geneva Papers on Risk and Insurance: Issues and PracticeVolume: 37Issue: 1DOI: 10.1057/gpp.2011.29
Scopus© Citations 46 -
PublicationThe Performance of Microinsurance Programs: A Data Envelopment AnalysisThe purpose of this research is to measure the performance of microinsurance programs using data envelopment analysis and to derive implications for the viable provision of microinsurance products. This is a worthwhile exercise given the significant limitations of the existing performance measures used in the microinsurance industry. A single and simple to interpret performance measure can overcome these limitations and provide a sophisticated tool for performance measurement within a multidimensional framework. Moreover, this technique can incorporate the important social function that microinsurers fulfill and provide powerful managerial implications. We illustrate the capabilities of data envelopment analysis using a sample of 20 microinsurance programs and recent innovations from the efficiency literature, such as the bootstrapping of efficiency scores and a truncated regression analysis of efficiency determinants.Type: journal articleJournal: Journal of Risk and InsuranceVolume: 78Issue: 1
Scopus© Citations 49 -
PublicationOrganization and Efficiency in the International Insurance Industry: A Cross-frontier AnalysisThis paper employs cross-frontier analysis, an innovative tool based on data envelopment analysis, to provide new insight into the relationship between organization and efficiency in international insurance markets. We are the first to empirically test the expense preference hypothesis and the efficient structure hypothesis in a large cross-country study. For this purpose, we consider 23,807 firm years for 21 countries from northern America and the European Union-a dataset not previously analyzed in this context. We find evidence for the efficient structure hypothesis in selected market segments, but we find no evidence for the expense preference hypothesis. Our results provide insight into the competitiveness of stock and mutual insurers from different countries. At the country level, the results can be used to compare different insurance markets. Our findings are especially interesting for the strategic management of insurance companies as well as for regulators and boards of national insurance associations.Type: journal articleJournal: European Journal of Operational ResearchVolume: 221Issue: 2
Scopus© Citations 43