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The Effects of Economies of Scale and Diversification on the Cost Structure of the Malaysian Non-life Insurance Industry

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  • Yin Choo Yap

    (Nanzan University)

Abstract

Using a sample of Malaysian non-life insurers over the period 2000-2007, I develop and test a model that explains the expense ratio as a function of output level, line-of-business diversification and other variables. Using various proxies for scale and line-of-business diversification, the empirical results show the existence of an interactive and non-linear relationship with cost. The findings suggest that there is no single minimum efficient scale level for all insurers; rather, it is contingent on the insurer's degree of line-of-business diversification and vice versa. I also find that costs for newly consolidated insurers and motor insurance are relatively higher and fail to find evidence that foreign-owned insurers or foreign joint venture insurers are more cost efficient.

Suggested Citation

  • Yin Choo Yap, 2009. "The Effects of Economies of Scale and Diversification on the Cost Structure of the Malaysian Non-life Insurance Industry," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 4(1), pages 1-29, November.
    • Handle: RePEc:bpj:apjrin:v:4:y:2009:i:1:n:3
    DOI: 10.2202/2153-3792.1045
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    References listed on IDEAS

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    Cited by:

    1. Willington Manuel & Alegría Alexander, 2012. "Collusion in a One-Period Insurance Market with Adverse Selection," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-32, April.

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