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Estimating the relation between digitalization and the market value of insurers

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  • Simon Fritzsch
  • Philipp Scharner
  • Gregor Weiß

Abstract

We analyze the relation between digitalization and the market value of US insurance companies. To create a text‐based measure that captures the extent to which insurers digitalize, we apply an unsupervised machine learning algorithm—Latent Dirichlet Allocation—to their annual reports. We show that an increase in digitalization is associated with an increase in market valuations in the insurance sector. In detail, capital market participants seem to reward digitalization efforts of an insurer in the form of higher absolute market capitalizations and market‐to‐book ratios. Additionally, we provide evidence that the positive relation between digitalization and market valuations is robust to sentiment in the annual reports and the choice of the reference document on digitalization, both being issues of particular importance in text‐based analyses.

Suggested Citation

  • Simon Fritzsch & Philipp Scharner & Gregor Weiß, 2021. "Estimating the relation between digitalization and the market value of insurers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(3), pages 529-567, September.
    • Handle: RePEc:bla:jrinsu:v:88:y:2021:i:3:p:529-567
    DOI: 10.1111/jori.12346
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    Cited by:

    1. Martin Eling & Irina Gemmo & Danjela Guxha & Hato Schmeiser, 2024. "Big data, risk classification, and privacy in insurance markets," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 49(1), pages 75-126, March.
    2. Hertel, Tobias & Kaya, Devrimi & Reichmann, Doron, 2024. "Corporate culture and M&A deals: Using text from crowdsourced employer reviews to measure cultural differences," Journal of Banking & Finance, Elsevier, vol. 161(C).
    3. Daniel Bauer & James Tyler Leverty & Joan Schmit & Justin Sydnor, 2021. "Symposium on insure‐tech, digitalization, and big‐data techniques in risk management and insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(3), pages 525-528, September.
    4. An Chen & Yusha Chen & Finbarr Murphy & Wei Xu & Xian Xu, 2023. "How does the insurer's mobile application sales strategy perform?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(2), pages 487-519, June.

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