nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒09‒30
two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Income Disparity, Inequality Aversion, and the Design of the Health Care System By John Leach
  2. Single- versus Multi-Channel Distribution Strategies in the German Life Insurance Market: A Cost and Profit Efficiency Analysis By Lucinda Trigo Gamarra

  1. By: John Leach
    Abstract: If society is averse to inequality and there is some income disparity, private health care insurance is sometimes socially better and sometimes worse than public health care. However, a third system? public health care with the option to purchase supplemental health care insurance? is always socially preferred to private health care insurance. It is not always socially preferred to public health care. If a public health care system is in place, the existence of a latent demand for supplemental insurance is a sufficient but not necessary condition for the supplemental insurance system to be socially preferred to public health care.
    Date: 2007–09
  2. By: Lucinda Trigo Gamarra (University of Rostock)
    Abstract: Until its liberalisation in 1994 exclusive agents dominated the distribution of products in the German life insurance industry. Since then, their importance has been declining for the benefit of both distribution via direct distribution channel and independent agents. However, the market shares of specialized direct and independent agent insurers have remained small, while multi-channel insurers increasingly incorporate direct and independent distribution channels, and represent the dominant distribution strategy. The aim of this paper is twofold: First, it analyses the performance of single and multi-channel distribution firms in the German life insurance. Thus, we are able to explain the development and the coexistence of the industries' distribution systems. Our study contributes to research on coexistence of different distribution systems in insurance industry which had been limited to the comparison of exclusive versus independent agent insurers so far. Second, our paper gives insight into cost and profit efficiency levels of German life insurance firms for the period 1997-2005, and delivers information about scale economies in the German life insurance industry. Applying an empirical framework developed by Berger et al. (1997) we estimate cost and profit efficiency for three groups of life insurance firms differing in their distribution systems: multichannel insurers, direct insurers, and independent agent insurers. Non-parametric DEA is used to estimate efficiencies for a sample of German life insurers for the years 1997-2005. Testing a set of hypothesis, we find economic evidence for the coexistence of the different distribution systems which is the absence of comparative performance advantages of specialised insurers. Further, we find evidence for scale economies in the German life insurance industry.
    Keywords: Insurance markets, distribution systems, efficiency analysis
    JEL: G22 L15 L22
    Date: 2007

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