| 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. |