Efficiency, Productivity, and Scale Economies in the U.S. Property-Liability Insurance Industry

51 Pages Posted: 31 Jul 2008 Last revised: 20 Apr 2014

See all articles by J David Cummins

J David Cummins

Temple University - Risk Management & Insurance & Actuarial Science

Xiaoying Xie

California State University, Fullerton

Date Written: December 30, 2011

Abstract

The paper examines efficiency, productivity and scale economies in the U.S. property-liability insurance industry. Productivity change is analyzed using Malmquist indices, and efficiency is estimated using data envelopment analysis (DEA). The results indicate that the majority of firms below median size in the industry are operating with increasing returns to scale, and the majority of firms above median size are operating with decreasing returns to scale. However, a significant number of firms in each size decile have achieved constant returns to scale. Over the sample period, the industry experienced significant gains in total factor productivity, and there is an upward trend in scale and allocative efficiency. More diversified firms, stock insurers, and insurance groups were more likely to achieve efficiency and productivity gains. Higher technology investment is positively related to efficiency and productivity improvements.

Keywords: Efficiency, Productivity, Scale Economies, Property-Liability Insurance, DEA, Malmquist indices

JEL Classification: G22, D24

Suggested Citation

Cummins, J. David and Xie, Xiaoying, Efficiency, Productivity, and Scale Economies in the U.S. Property-Liability Insurance Industry (December 30, 2011). Available at SSRN: https://ssrn.com/abstract=1189487 or http://dx.doi.org/10.2139/ssrn.1189487

J. David Cummins

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1801 Liacouras Walk.
Philadelphia, PA 19122
United States
215-204-8468 (Phone)
215-204-4712 (Fax)

Xiaoying Xie (Contact Author)

California State University, Fullerton ( email )

800 N State College St
Fullerton, CA 92831
United States

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