Philipp Schaper

Under pressure: how the business environment affects productivity and efficiency of European life insurance companies

Deregulation and widespread economic changes have fundamentally affected the business environment of European life insurance companies over the last decades. We apply multi-stage data envelopment analysis to identify the impact of the changing environment on productivity and efficiency of European life insurance companies. Considering a sample of 970 life insurance companies from 14 European countries, we show that general economic, capital market, and insurance market conditions are important drivers of efficiency. Although we find no technical change in the European life insurance sector, we nonetheless observe an efficiency increase in 2002–2013 that leads to an increase in total factor productivity; these trends can be explained by more challenging business conditions in the 2000s. Our results emphasize the need to control for the business environment in cross-country efficiency studies.

Get the Balance Right: A Simultaneous Equation Model to Analyze Growth, Profitability, and Safety

In the context of insurance industry, we provide a theoretical and empirical framework to analyze the tradeoffs between three fundamental goals of business: growth, profitability, and safety. Insurers balance on premium and underwriting standards to optimize one goal constrained by the other two. Analyzing 1,988 European insurance companies over eleven years with simultaneous equation models, we show that moderate firm growth increases profitability; however, extremely high growth reduces profitability. In addition, less profitable insurers are more willing to take risks. Our results emphasize the need to jointly consider growth, profitability, and safety in a multi-period context when evaluating firm performance.