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Efficiency: Mutual vs. Stock P-L Insurers

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  • Anyomi, Siegfried Kafui

Abstract

This paper reviews evidence from the U.S. property-liability insurance industry that examines technical efficiency between mutual and stock organizational forms. I exploit a modified slacks-based measure data envelopment analysis methodology to estimate technical efficiency of a property-liability insurer relative to a reference set consisting of all such insurers with the same organizational form. Then, I distinguish relative technical efficiency between insurers’ capacity to maximize social capital (reputational efficiency) and to maximize investment returns (investment efficiency). I document statistically significant evidence that mutual insurers outperform stock insurers in terms of reputational and investment efficiencies. My findings thus reflect a newer appreciation of organizational forms in insurance and illuminate how households make key insurance decisions.

Suggested Citation

  • Anyomi, Siegfried Kafui, 2023. "Efficiency: Mutual vs. Stock P-L Insurers," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612323000053
    DOI: 10.1016/j.frl.2023.103631
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    References listed on IDEAS

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    7. Muhammed Altuntas & Thomas R. Berry-Stölzle & J. David Cummins, 2021. "Enterprise risk management and economies of scale and scope: evidence from the German insurance industry," Annals of Operations Research, Springer, vol. 299(1), pages 811-845, April.
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    More about this item

    Keywords

    Data envelopment analysis; Insurance organizational forms; Property-liability insurance;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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