Effect of Market Access on Property-Liability Insurer Performance in Korea and Japan

Abstract

We conduct a data envelopment analysis to measure the efficiency of property-liability insurers in Korea and Japan for the 1991 to 1999 time period. We examine whether the firms efficiency and productivity change is affected by the number of market competitors. Property-liability insurance industries of Japan and Korea share similar characteristics in many aspects. While both industries turn into liberalized markets from highly regulated and protected industries, deregulations on market access are notably different. As a consequence, the Japanese property-liability insurers significantly increased but a little change is witnessed in the number of competitors in Korea. We find insurers performance unaffected by the number of new competitors. Despite a substantial increase of the number of firms, the Japanese insurers are losing their efficiency and productivity regardless of firm size. In Korea, we find that the large-sized insurers begin to have advantage over the small- to mid-sized insurers from efficiency as well as from their size after the financial crisis of 1997. In addition, small- to mid-sized insurers are likely to be more vulnerable to the new business environment because their efficiency and productivity have slowly improved compared to the large-sized insurers in both industries.