Ownership Form and Efficiency: The Coexistence of Stock and Mutual Life Insurers
This paper explores the question of whether stock and mutual life insurers differ with respect to firm-level efficiency. It is the first study to compare directly the efficiency of stock and mutual life insurers, and the first study to compare activity choices and insurer characteristics of stock an...
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Published in | Journal of insurance issues Vol. 36; no. 2; pp. 121 - 148 |
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Main Authors | , , |
Format | Journal Article |
Language | English |
Published |
Northridge
Western Risk and Insurance Association
01.10.2013
Western Risk & Insurance Association |
Subjects | |
Online Access | Get full text |
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Summary: | This paper explores the question of whether stock and mutual life insurers differ with respect to firm-level efficiency. It is the first study to compare directly the efficiency of stock and mutual life insurers, and the first study to compare activity choices and insurer characteristics of stock and mutual life insurers using consolidated, group-level data. It also extends the work of Cummins, Weiss, and Zi (1999) on crossfrontier efficiency of property-liability insurers to life insurers, and additionally investigates revenue and allocative efficiency. Because mutual and stock insurers differ in their owners, each ownership form is characterized by differing incentive conflicts; the owner-policyholder conflict is likely to be greater in stock firms while the owner-manager conflict is likely to be greater in mutual firms. These differences have given rise to three main hypotheses: the managerial discretion hypothesis, the maturity hypothesis, and the expense preference hypothesis. Consistent with the managerial discretion and maturity hypotheses, our analysis indicates that mutual and stock life insurers are indeed operating on separate efficient frontiers, and therefore appear to utilize distinct technologies. However, we find no evidence in support of the expense preference hypothesis. |
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ISSN: | 1531-6076 2332-4244 |