Microinsurance and Efficiency in the Insurance Industry

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.