Using a large sample of cross-sectional data for 1998 of companies operating in the general insurance industry we attempt to shed some light on the issue of competition in this industry. Companies offering products and services in the general insurance market are believed to trade under very competitive conditions. In order to test this widely-held claim we investigate whether firms' pricing policies reflect competitive or monopolistic market features. Under competitive conditions companies are forced to pass on any increase in costs in prices and thus their revenues will rise pari passu should wages, underwriting costs or other expenses increase. By contrast, a firm operating under monopolistic competition responds to an increase in marginal and average costs by increasing price and reducing output, resulting in a less then complete pass-through in revenue; profit falls. Our study is the first, to our knowledge, to apply this research methodology to the general (casuality/liability) insurance industry. Firms in this industry generate revenue through underwriting of insurance risks and from investing their assets. As underwriting and capital markets are in general segmented (catastrophe bonds apart), our empirical approach is based on the insurance and portfolio behaviour of firms and not on an integrated view of both. Previous investigations of this kind have focussed on the banking industry. Contrary to widely held views we find that competition is less than perfect. JEL Classification Numbers: D4, G22
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
customersupport@researchsolutions.com
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.