Efficiency and Productivity in the US Property-Liability Insurance Industry: Ownership Structure, Product and Distribution Strategies

Abstract

The paper examines efficiency and productivity of US property-liability (P-L) insurers using data envelopment analysis (DEA). We estimate pure technical, scale, cost, revenue and profit efficiency over the period 1993-2011. Insurers’ adjacent year total factor productivity changes and their contributing factors are also investigated. In particular, we explore the relationship of insurers’ efficiency with their ownership structure, product and distribution strategies. Regression analyses are also performed to explore the relationships between firm characteristics, efficiency and productivity. The results indicate US P-L insurance industry has improved its efficiency and productivity over time. Insurers’ product strategy, distribution system, and diversification strategy are important determinants of insurers’ efficiency and productivity, along with other firm characteristics.

Keywords: property-liability insurance, productivity, data envelopment analysis (DEA), Malmquist index, mutual insurers, distribution systems, diversification

JEL Classification: G20,G22