Cost efficiency and scale economies in the Turkish insurance industry

Kasman, Adnan; Turgutlu, Evrim

doi:10.1080/00036840701367663

Cited by 29 publications

(36 citation statements)

References 24 publications

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“…Previous research into non-life insurance revealed substantial scale economies averaging above 10% for the Dutch market (Bikker and Gorter, 2011). Similar results were found in studies focusing on the US and several European countries (Cummins and Weiss, 2014;Kasman and Turgutlu, 2009;Fenn et al, 2008;Cummins and Rubio-Misas, 2006;Fecher et al, 1991). This paper contributes to the literature by applying the PCS measure of competition, which has to date been rarely used.…”

Section: Introductionsupporting

confidence: 68%

Efficiency and Competition in the Dutch Non-Life Insurance Industry: Effects of the 2006 Health Care Reform

Bikker

Popescu²

2014

SSRN Journal

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This paper investigates the cost efficiency and competitive behaviour of the nonlife -or property and casualty -insurance market in the Netherlands over the period 1995-2012. We focus on the 2006 health care reform, where public health care insurance has been included in the non-life insurance sector. We start with estimating unused scale economies and find that after the health care reform in 2006, unused scale economies are, at 21%, much higher than before the reform (4%), pointing to a relative increase of fixed costs. Scale inefficiencies are generally higher for smaller insurance and lower for large insurance companies. As a benchmark, we also estimate scale economies for non-health lines of business (LOB), which range from 5% to 10%. To measure competition directly, we apply a novel approach that estimates the impact of marginal costs as indicator of inefficiency on either market shares or profits. Over time, competition in health insurance has increased significantly, but the inclusion of the (non-competitive) public health care funds in the health insurance sector in 2006 caused a fall in the average level of competitive pressure. After the reform, competition continued to improve. In the non-health LOB non-life insurance, we find similar significant effects of efficiency on both market shares. The non-life effects are weaker than in life insurance, banking and non-financial sectors, suggesting less heavy competition.

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Section: Introductionsupporting

confidence: 68%

Efficiency and Competition in the Dutch Non-Life Insurance Industry: Effects of the 2006 Health Care Reform

Bikker

Popescu²

2014

SSRN Journal

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“…Irrespective of the small sample size advantage, this overall average falls below the averages of most studies in the insurance efficiency literature. The average cost efficiencies of 69.1%, 62.7%, and 66.02% recorded in the studies of Kasman and Turgutlu (), Rai (), and Hao and Chou (), respectively, clearly shows a low cost efficiency of insurers in the Ghanaian economy. Figure reveals that, the negative growth is due to the steep decrease recorded in the periods 2005–2007, 2009–2010, and 2012–2013 against the gradual rise in 2008–2009 and 2011–2012.…”

Section: Resultsmentioning

confidence: 89%

“…Considering deregulation of the financial industry as well as the legal adjustments requiring insurers to specialize in either life or nonlife businesses before 1994, Kasman and Turgutlu () analyzed the cost efficiency and the scale economies of 85 Turkish insurance firms over the period 1990–2004 using the SFA technique. From a minimum cost inefficiency of 18.3% and a maximum of 36.9%, the Turkish insurance industry recorded an average of 30.6% cost inefficiency.…”

Section: Literature Reviewmentioning

confidence: 99%

“…From a minimum cost inefficiency of 18.3% and a maximum of 36.9%, the Turkish insurance industry recorded an average of 30.6% cost inefficiency. According to Kasman and Turgutlu (), the highest inefficiency level was recorded after the specialization regulatory Act in 1994 with an average of 35.9% inefficiency indicating that the regulation worsened the cost inefficiencies of the firms in the industry. It was also observed that all firms in the industry operated under increasing returns to scale indicating that economies of scale existed at every level of production in the industry.…”

Section: Literature Reviewmentioning

confidence: 99%

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Cost efficiency of insurance firms in Ghana

2017

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The huge infrastructural deficit in Africa requires the establishment of an efficient insurance industry in the pursuance of economic development. Unfortunately, global statistics reveal low patronage of insurance in developing countries, thus making its impact limited in the region. To position the industry for economic development, this study utilizes the stochastic frontier technique to undertake a thorough analysis on the cost efficiency of insurers from the perspective of developing economies using Ghana as a case study. The results on the 30 insurers studied from 2005 to 2014 indicate that insurers in Ghana operate with about 53.8% average cost inefficiency. This stands to confirm the long existed low performance perception of Ghanaians about the industry. Factors identified to explain the cost inefficiencies were firm size, market share, capitalization, reinsurance, regulation, and business type. Several policy recommendations that can help boost the cost efficiency of insurers were derived from the results.

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“…Strong consolidation, on average, brings decreased scale inefficiencies over time. Using a Translog Cost Function (TCF), Kasman and Turgutlu (2009) observe scale economies in Turkey over 2000-2004 of, on average, 30%. All three studies present higher scale inefficiency for small insurers, lower inefficiency for medium-sized and larger firms, while the largest companies show again more scale inefficiency, pointing to a certain optimal scale.…”

Section: Literature On Performance In the Life Insurance Industrymentioning

confidence: 99%

Performance of the Life Insurance Industry Under Pressure: Efficiency, Competition and Consolidation

Bikker

2012

SSRN Journal

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A well-performing life insurance industry benefits consumers, producers and insurance firm stockholders alike. Unfavourable market conditions stress the need for life insurers to perform well in order to remain solvent. Using a unique supervisory data set, this paper investigates competition and efficiency in the Dutch life insurance market by estimating unused scale economies and measuring efficiency-market share dynamics during 1995-2010. Large unused scale economies exist for small and medium-sized life insurers, indicating that further consolidation would reduce costs. Over time average scale economies decrease but substantial differences between small and large insurers remain. A direct measure of competition confirms that competitive pressures are at a lower level than in other markets. We do not observe any impact of increased competition from banks, the so-called investment policy crisis or the credit crisis, apart from lower returns in 2008. Investigation of product submarkets reveals that competition is higher on the collective policy market, while the opposite is true for the unit-linked market, where the role of intermediary agents is largest.

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Cost efficiency and scale economies in the Turkish insurance industry

Cited by 29 publications

References 24 publications

Efficiency and Competition in the Dutch Non-Life Insurance Industry: Effects of the 2006 Health Care Reform

Efficiency and Competition in the Dutch Non-Life Insurance Industry: Effects of the 2006 Health Care Reform

Cost efficiency of insurance firms in Ghana

Performance of the Life Insurance Industry Under Pressure: Efficiency, Competition and Consolidation

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