This paper employs cross-frontier analysis, an innovative tool based on data envelopment analysis, to provide new insight into the relationship between organization and efficiency in international insurance markets. We are the first to empirically test the expense preference hypothesis and the efficient structure hypothesis in a large cross-country study. For this purpose, we consider 23,807 firm years for 21 countries from northern America and the European Union-a dataset not previously analyzed in this context. We find evidence for the efficient structure hypothesis in selected market segments, but we find no evidence for the expense preference hypothesis. Our results provide insight into the competitiveness of stock and mutual insurers from different countries. At the country level, the results can be used to compare different insurance markets. Our findings are especially interesting for the strategic management of insurance companies as well as for regulators and boards of national insurance associations.
Due to their relatively high yields and low return correlations with traditional asset classes, insurance-linked securities (ILS) are often described as an attractive investment opportunity. Yet, the investor base for ILS is largely dominated by a few specialized investment managers. The aim of this paper is to analyze advantages and disadvantages, the current market development and the decision-making processes that drive the demand for this aspiring asset class. To reach this aim, we first review the existing knowledge on ILS instruments and markets, then present results of a new international survey among ILS Investors and finally, based on the results of the first and second step, derive implications for the future development of ILS.
The key findings of our study can be summarized as follows: To date, transaction costs along with lacking experience / knowledge and regulatory uncertainty are the most significant impediments to ILS market expansion. Skin in the game is necessary to attract investors; we show that a 5 to 10% sponsor investment leads to large increases in the willingness to invest. We observe that investors do not consider ratings as necessary and that having no rating is better than having a bad rating. Overall, the ILS market is likely to grow substantially over the next years; the survey participants expect its volume to double by 2019. In this context, we discuss the role of new instruments such as protected cell companies and new types of risks such as cyber risk, high frequency risks or run-off risks.
This paper provides a comprehensive analysis of the insurability of risks in microinsurance markets. Our aim is to enhance the understanding of impediments to and facilitators of microinsurance from an economic perspective and outline potential solutions. The motivation for conducting this analysis arises from two important aspects. (1) Despite strong growth of microinsurance markets in recent years, more than 90 per cent of the poor population in developing countries have limited or no access to insurance. (2) Industry practitioners frequently highlight problems in the insurability of risks that hinder the development of microinsurance. We review 131 papers and find that the most severe problems stem from insufficient resources for risk evaluation, small size of insurance groups, information asymmetries and the size of the insurance premium. On the basis of the analysis, we discuss a number of potential solutions such as, for example, a cooperative microinsurance architecture.
