Philipp Schaper

We find evidence for the capacity-constraint hypothesis in a newly constructed sample of firmlevel data for the German non-life insurance market over an extended period (1954–2016). Moreover, we show that the impact of capacity on price is complex and depends on various exogenous factors (interest rate change, catastrophes, GDP growth, and regulation). We also find that decreased firm capacity has a negative impact on productivity change. The dual impact of capacity is important since price and productivity change determine firm profitability. Our results yield important implications for the understanding of underwriting cycles and reemphasize the role of capacity in the business of insurance.

Deregulation and widespread economic changes have fundamentally affected the business environment of European life insurance companies over the last decades. We apply multi-stage data envelopment analysis to identify the impact of the changing environment on productivity and efficiency of European life insurance companies. Considering a sample of 970 life insurance companies from 14 European countries, we show that general economic, capital market, and insurance market conditions are important drivers of efficiency. Although we find no technical change in the European life insurance sector, we nonetheless observe an efficiency increase in 2002–2013 that leads to an increase in total factor productivity; these trends can be explained by more challenging business conditions in the 2000s. Our results emphasize the need to control for the business environment in cross-country efficiency studies.